Crypto assets, an investment that was previously thought to be tax-free and unregulated, are now set to be the latest target of the UK Government’s crackdown on tax evasion.

The UK, in a landmark move, has partnered with 48 countries to address the issue of criminals exploiting crypto assets to evade and avoid substantial amounts of tax.

This initiative has culminated in the Crypto Asset Reporting Framework (CARF), an endeavour led by the UK and established by the Organisation for Economic Co-operation and Development (OECD).

This framework mandates crypto platforms to begin disclosing taxpayer information to tax authorities, a practice not currently in place.

This will facilitate tax authorities in exchanging information to ensure tax compliance. The implementation of the CARF is anticipated to commence by 2027.

This initiative builds upon the 2021 two-pillar global tax agreement, aiming to ensure appropriate tax payment by businesses in their operating regions and to mitigate tax evasion by large multinational enterprises through a 15 per cent global minimum rate.

Financial Secretary to the Treasury, Victoria Atkins, emphasised the UK’s commitment to combating global tax evasion and ensuring crypto assets are not used to circumvent tax obligations.

The CARF is an extension of the existing Common Reporting Standard used by tax authorities for information sharing.

Since its inception in 2014, this system has been instrumental in countering offshore tax evasion, recovering almost £100 billion in additional tax revenue from traditional financial assets.

With the global crypto market’s rapid expansion, the CARF is crucial in addressing the rising trend of tax avoidance.

Estimates indicate that tax non-compliance on crypto-asset holdings could be between 55 and 95 per cent.

The UK, a pioneer in tax transparency, played a pivotal role in shaping, negotiating, and finalising the CARF, potentially recovering hundreds of millions of pounds through its implementation.

What CARF means for you and your business

The introduction of CARF signifies a major shift in the way the UK Government, along with international partners, approaches the taxation of crypto assets.

This change has direct implications for your business, especially if you hold or transact in crypto assets.

• Increased transparency and reporting requirements: With CARF, crypto platforms will be required to report taxpayer information to tax authorities. If your business holds crypto assets on these platforms, you should prepare for more transparency in your transactions. This means keeping detailed records and being ready to report these holdings accurately.
• Tax compliance: The primary objective of CARF is to enforce tax compliance. Businesses dealing in crypto assets should be aware that any gains made from these assets are subject to taxation, similar to gains from other investments. This development indicates the need for a thorough review of your tax strategies in relation to crypto assets.
• Anticipating changes in tax legislation: The CARF is set to be implemented by 2027, but it’s important to anticipate and prepare for these changes in advance. Your business should stay informed about potential legislative updates that could affect how crypto assets are taxed and reported.
• Risk of non-compliance: With estimates suggesting high levels of tax non-compliance in crypto-asset holdings, the risk of penalties and scrutiny for non-compliance will likely increase. It is crucial to ensure that your business adheres to the evolving tax regulations surrounding crypto assets.
• Consultation and preparation: Seeking advice and guidance from tax professionals knowledgeable in crypto assets is advisable. This can help you understand the nuances of crypto taxation and ensure compliance.
• Long-term planning: As the crypto market continues to grow and evolve, it’s important for your business to consider the long-term tax implications of holding and trading in crypto assets. Strategic planning now can help mitigate potential tax burdens in the future.

Businesses must stay ahead of these changes to ensure compliance and optimise their tax position if they are involved in crypto in some way.

What if you don’t trade in crypto assets?

If your business doesn’t trade in crypto assets, the direct impact of the Crypto Asset Reporting Framework (CARF) may be limited, but there are still some broader implications:

• Market influence: The regulation of crypto could affect overall market trends and investor behaviour, potentially influencing the stock market and investment strategies.
• Wider regulatory trends: CARF’s introduction indicates a move towards tighter financial regulations, which could eventually extend to traditional shares and securities.
• Emphasis on tax compliance: While focused on crypto, CARF underscores the importance of robust tax compliance for all assets, including traditional shares.
• Global tax efforts: CARF’s multinational approach suggests increased global cooperation in tax regulation, which could impact international investments in traditional shares.
• Risk management and diversification: Understanding CARF’s implications helps in better risk management, advising a balanced investment portfolio between traditional shares and other assets.

In essence, while CARF targets crypto assets, it’s part of a broader shift towards more regulated and transparent financial practices, affecting traditional shareholders indirectly.

Regardless of whether you or your business trades in cryptocurrencies and crypto assets, you should speak to an accountant about the influence that CARF will likely have in the medium-to-long term.

Our experts are well versed in crypto regulation so please reach out to us for additional information and tailored guidance.