What Penalties Apply for Failing to Report Crypto to HMRC?

At Towerstone, we provide specialist crypto accountancy services for UK investors and businesses. We have written this article to explain penalties and disclosure options, helping you understand the tax and reporting position.

From experience, most people who run into problems with HMRC over crypto are not acting maliciously. They are usually caught out by misunderstanding the rules, assuming crypto activity is too small to matter, or leaving everything until the last minute. In my opinion, HMRC’s penalty system is designed less to punish honest mistakes and more to penalise inaction, carelessness, or deliberate avoidance once someone should reasonably have known better.

Crypto does not sit outside the UK tax system. HMRC treats it in broadly the same way as shares and other assets, and that means the same filing obligations, deadlines, and penalties apply. Where crypto differs is the complexity. Multiple wallets, exchanges, DeFi activity, staking, airdrops, and poor record keeping all increase the likelihood of errors, and errors are what trigger penalties.

In this article, I will explain clearly what penalties can apply if you fail to report crypto to HMRC, how those penalties are calculated, how HMRC decides whether behaviour was careless or deliberate, and what you can do to reduce penalties if you realise something has gone wrong. Everything here reflects real UK practice and what I see when crypto issues are corrected after the fact.

By the end, you should understand what the risks are, how serious they can become, and why early action almost always leads to a better outcome.

What HMRC means by failing to report crypto

Failing to report crypto does not only mean failing to file a tax return at all. In practice, HMRC sees several different types of failure, each of which can attract penalties.

The most common situations I see are:

Crypto gains were made but never reported

Crypto income such as staking rewards, referral bonuses, or some airdrops was ignored

A Self Assessment return was filed but key transactions were missing

Crypto to crypto swaps were not treated as disposals

The individual should have registered for Self Assessment but never did

Tax was calculated correctly but paid late

Each of these failures can trigger different penalties, and in some cases, more than one penalty can apply at the same time.

The four main types of penalties that apply to crypto

From experience, crypto related penalties almost always fall into one or more of the following categories:

Late filing penalties

Late payment penalties and interest

Inaccuracy penalties for incorrect returns

Failure to notify penalties

Understanding the difference between these is critical, because the way penalties build up depends on which obligation was missed.

Late filing penalties for Self Assessment

If you were required to file a Self Assessment tax return and you filed it late, HMRC applies fixed penalties regardless of whether tax is ultimately due.

The standard penalty structure is:

An immediate fixed penalty once the deadline is missed

Daily penalties if the return remains outstanding for several months

Additional penalties if the return is still not filed after six and twelve months

From experience, the initial fixed penalty is the one that catches people out most. It can apply even if no tax is owed, simply because the return was late.

Crypto investors are particularly exposed to late filing penalties because many only realise they need to file once they start calculating gains, often close to or after the deadline.

In my opinion, if you are approaching the deadline and do not yet have perfect crypto figures, it is usually better to file a return that is substantially correct and amend it later than to miss the filing deadline entirely. Missing the deadline almost guarantees a penalty.

Late payment penalties and interest

Late payment penalties are separate from late filing penalties. You can file on time and still be penalised if you pay late.

If tax is not paid by the due date, HMRC may charge:

Interest on the outstanding amount

Percentage based penalties if the tax remains unpaid after certain time points

From experience, crypto makes late payment more likely because people plan to sell assets to fund the tax, then markets fall, funds are locked, or the tax bill is larger than expected.

In my opinion, paying something is always better than paying nothing. Even a partial payment reduces interest and demonstrates engagement, which can matter later.

Inaccuracy penalties for incorrect crypto reporting

This is where most crypto related penalties arise.

An inaccuracy penalty can apply if a tax return contains an error that leads to:

Too little tax being paid

A loss being overstated

A repayment being incorrectly claimed

In crypto terms, this often means:

Missing exchanges or wallets

Ignoring crypto to crypto swaps

Treating income as capital or vice versa

Relying on incomplete exchange reports

The penalty is based on the tax that HMRC believes was lost because of the error. This is known as the potential lost revenue.

How HMRC decides the level of an inaccuracy penalty

In my experience, the most important factor in determining the size of an inaccuracy penalty is behaviour.

HMRC broadly categorises behaviour as:

Careless

Deliberate

Deliberate and concealed

Careless usually means you failed to take reasonable care. This might include poor record keeping, misunderstanding the rules, or relying on incomplete data without checking.

Deliberate means you knew tax was due and chose not to report it.

Deliberate and concealed means steps were taken to hide the activity or mislead HMRC.

The penalty range increases significantly as behaviour moves from careless to deliberate.

In my opinion, most ordinary crypto mistakes fall into the careless category, but that does not mean penalties are avoided. It simply means they are lower than they would be for deliberate behaviour.

Prompted versus unprompted disclosures

Another key factor is whether HMRC found the problem first.

If you tell HMRC about an error before they contact you, this is an unprompted disclosure. If HMRC opens an enquiry and then you correct the issue, it is prompted.

From experience, unprompted disclosures almost always result in lower penalties. Waiting for HMRC to write to you rarely improves the outcome.

Failure to notify penalties

Failure to notify penalties apply where you should have told HMRC that you were chargeable to tax and you did not do so.

This commonly applies where:

You had taxable crypto gains or income

You were not already in Self Assessment

You failed to register despite being required to

In my opinion, this is one of the most overlooked risks for crypto investors, particularly those with PAYE income who assume everything is already covered.

Failure to notify penalties are also behaviour based and can be significant where HMRC believes the failure was deliberate.

Can HMRC charge more than one penalty?

Yes, multiple penalties can apply if different obligations were missed.

From experience, a single crypto issue can result in:

Late filing penalties

Late payment penalties and interest

Inaccuracy penalties

Failure to notify penalties

These do not always stack fully on top of each other, but the longer an issue is left unresolved, the more exposure builds.

How HMRC views crypto behaviour in practice

In my opinion, HMRC’s approach to crypto is becoming more sophisticated rather than more aggressive.

What I see in practice is:

HMRC expects reasonable record keeping

HMRC understands crypto is complex

HMRC is far less forgiving of silence than mistakes

People who engage early, explain clearly, and correct errors voluntarily usually achieve far better outcomes than those who ignore the issue or hope it goes away.

How to reduce penalties if you have not reported crypto properly

From experience, the steps below consistently reduce penalties and stress.

Step one, get clarity on what is missing

List every exchange, wallet, and platform you have used. Include DeFi activity, staking, lending, NFTs, airdrops, and referral bonuses. You cannot fix what you have not identified.

Step two, rebuild accurate records

Download transaction histories, reconcile transfers, and ensure ownership is clear. Most errors arise because early deposits or transfers are missing.

Step three, calculate the tax correctly

Apply the correct UK tax treatment to each activity. Do not guess. If something is unclear, document your reasoning.

Step four, disclose voluntarily if needed

If tax has been underpaid, telling HMRC before they contact you almost always leads to a lower penalty range.

Step five, pay what you can

Interest continues to run until payment is made. Paying something immediately reduces the overall cost and shows cooperation.

Step six, keep evidence and explanations

If HMRC asks questions, having a clear narrative and supporting records often shortens enquiries significantly.

Reasonable excuse and appeals

Penalties are not always final. If you had a reasonable excuse for missing a deadline, you can appeal.

In my experience, a reasonable excuse must be something that genuinely prevented compliance, not simply lack of awareness or procrastination. Evidence matters.

Appeals should be made promptly and factually.

A realistic example from experience

I often see scenarios like this:

Crypto gains are made over several years

No Self Assessment registration occurs

A return is eventually filed late

Gains are understated due to missing data

In this situation, late filing penalties, late payment penalties, inaccuracy penalties, and failure to notify penalties can all come into play.

The difference between a manageable outcome and a painful one is usually how quickly the person engages once the problem is identified.

Should you be worried about HMRC and crypto?

In my opinion, worry is not productive, but complacency is dangerous.

HMRC’s focus is not on punishing people who made genuine mistakes. It is on ensuring tax is paid correctly and discouraging deliberate non compliance.

Crypto is no longer niche, and the assumption that activity is invisible is increasingly outdated.

Where this leaves you

Failing to report crypto to HMRC can lead to a range of penalties, from relatively modest late filing charges to significant behaviour based penalties where errors are serious or deliberate. The size of the penalty depends on what went wrong, why it went wrong, and how you respond once you realise there is an issue.

From experience, the most expensive crypto tax problems are rarely caused by the tax itself. They are caused by delay, poor records, and avoidance of the issue. In my professional opinion, the best way to minimise penalties is to act early, disclose voluntarily where necessary, and approach crypto tax as a compliance exercise rather than something to fear.

If you know or suspect that your crypto reporting is incomplete, dealing with it now is almost always cheaper, faster, and less stressful than waiting for HMRC to make the first move.

If you would like to explore related investing and crypto guidance, you may find What records should I keep for cryptocurrency transactions and Do I pay tax on crypto used to buy goods or services useful. For broader investing context, visit our stocks and shares guidance hub.