What Penalties Apply for Failing to Report Crypto to HMRC?

HMRC takes crypto tax seriously, and failure to report can lead to large fines and interest. Learn what penalties apply and how to correct undeclared crypto tax.

Introduction

As cryptocurrency investing becomes more common, HMRC is paying closer attention to how individuals and businesses report their crypto activity. In the UK, you must declare and pay tax on profits from buying, selling, or earning crypto. Failing to report these transactions correctly can result in penalties, interest, and even criminal investigation in serious cases.

HMRC now receives data from major crypto exchanges, which means it can identify users who have not declared taxable gains or income. This article explains the penalties that apply for failing to report crypto to HMRC, how they are calculated, and what you can do to put things right.

When You Need to Report Crypto

You must report crypto activity to HMRC if you:

  • Sell or exchange cryptocurrency for another asset or fiat currency.

  • Spend crypto to buy goods or services.

  • Receive crypto as payment for work, mining, staking, or airdrops.

  • Gift crypto to someone other than your spouse or civil partner.

These actions are treated as taxable disposals. Depending on your activity, you may owe Capital Gains Tax (CGT) on profits or Income Tax on earnings.

Even if you made a loss, you should still report it, as HMRC allows you to carry losses forward to offset future gains.

How HMRC Finds Undeclared Crypto

HMRC has made cryptocurrency one of its key areas of tax enforcement. It collects data directly from UK-based and international exchanges under global information-sharing agreements.

If your trading history or wallet activity suggests undeclared income or gains, HMRC can issue a nudge letter inviting you to review and correct your tax position. Ignoring this can lead to an investigation, during which penalties and interest may apply.

The Types of Penalties for Failing to Report

HMRC applies penalties based on the nature of your mistake and whether it was accidental or deliberate.

  1. Failure to Notify Penalty applies when you do not tell HMRC you are liable for tax.

  2. Inaccuracy Penalty applies when your tax return includes incorrect or missing information.

  3. Late Payment and Interest added when tax is not paid on time.

The amount of the penalty depends on how serious the error is and whether you come forward voluntarily.

How HMRC Classifies Your Behaviour

HMRC groups non-compliance into three main categories:

Behaviour Description Maximum Penalty

Careless You made an honest mistake or did not take reasonable care. Up to 30% of unpaid tax

Deliberate You knew tax was due but chose not to declare it. Up to 70% of unpaid tax

Deliberate & You took steps to hide your crypto activity, such as using Up to 100% of unpaid tax

Concealed multiple wallets or false accounts.

If your crypto transactions involve offshore exchanges or wallets, the penalties can be even higher — up to 200% of the tax owed.

Interest on Unpaid Tax

In addition to penalties, HMRC charges interest on any unpaid tax from the date it was originally due. The current rate is set above the Bank of England base rate and compounds daily until payment is made.

Even if your penalty is reduced or waived, interest will still apply, so it is important to pay outstanding tax as soon as possible.

Example of How Penalties Work

Suppose you made £20,000 in crypto profits in 2021 but did not report them. HMRC later discovers the omission in 2025.

  • If HMRC believes it was a careless error, you could face a 15% penalty (£600) on top of the £4,000 tax owed (20% of £20,000).

  • If they decide it was deliberate, the penalty could rise to 50%, or £2,000.

  • If you concealed the profits or ignored previous warnings, the penalty could reach 100%, meaning you pay £4,000 in penalties plus the £4,000 tax and interest.

How Far Back HMRC Can Go

The period HMRC can review depends on the seriousness of the non-compliance:

  • 4 years for simple errors made despite taking reasonable care.

  • 6 years for careless behaviour.

  • 20 years for deliberate evasion or concealment.

If HMRC believes you deliberately failed to report crypto transactions, it can investigate your tax history over two decades.

The Importance of Voluntary Disclosure

If you realise you have not declared crypto gains or income, it is better to contact HMRC before they contact you. Making a voluntary disclosure can significantly reduce or even eliminate penalties.

You can do this through HMRC’s Digital Disclosure Service, which allows you to:

  1. Inform HMRC about undeclared crypto activity.

  2. Submit revised figures.

  3. Agree on how much tax, interest, and penalties to pay.

Voluntary disclosure is viewed more favourably by HMRC and often results in smaller penalties — sometimes as little as 0% if the disclosure is full and honest.

What Happens If You Ignore HMRC

If you ignore letters or fail to respond to HMRC’s enquiries, they may open a formal investigation. This could lead to:

  • Large financial penalties and interest.

  • Seizure of assets to recover tax owed.

  • In extreme cases, criminal prosecution for deliberate tax evasion.

While prosecutions are rare and usually reserved for serious fraud, they remain a risk for those who knowingly conceal substantial crypto assets or fail to cooperate.

How to Stay Compliant

To avoid penalties in the future, follow these steps:

  • Keep detailed records of all crypto transactions, including purchase and sale dates, amounts, and values in pounds sterling.

  • Report any gains or losses through your Self Assessment tax return.

  • Pay CGT and Income Tax on time.

  • Use crypto tax software or an accountant to ensure accuracy.

Keeping accurate records is essential, as HMRC may ask for evidence of your calculations during an audit.

The Role of an Accountant

An accountant or tax specialist can help you:

  • Review your crypto activity and determine whether tax is owed.

  • Calculate gains and losses accurately.

  • File amended tax returns or make voluntary disclosures.

  • Negotiate with HMRC to reduce penalties.

Professional help is especially valuable if you have complex crypto holdings, use multiple exchanges, or are unsure how to report your transactions.

Example of Voluntary Disclosure in Practice

Anna started trading crypto in 2019 but did not realise she needed to pay tax. In 2024, she learns about HMRC’s requirements and uses the Digital Disclosure Service to declare her past gains.

Because she came forward voluntarily, HMRC charges minimal penalties and interest. Anna pays the outstanding tax and avoids a formal investigation.

Conclusion

Failing to report crypto transactions to HMRC can lead to significant penalties, ranging from 30% to 100% of the unpaid tax, plus interest. In deliberate cases involving concealment or offshore wallets, penalties can reach 200%.

However, if you come forward voluntarily and cooperate with HMRC, penalties are often reduced substantially. The best approach is to keep detailed records, file accurate tax returns, and seek professional advice to ensure compliance. By taking proactive action, you can avoid unnecessary stress and protect yourself from harsh penalties in the future.