HMRC is increasingly sending warning letters to crypto investors

HMRC’s growing use of data and warning letters

HMRC has adopted a more intelligence-led approach to compliance. Rather than relying solely on traditional enquiries, HMRC uses extensive third-party data, information exchange agreements, digital platform reporting and its Connect data analytics system to identify perceived areas of risk. HMRC has openly confirmed that OTM campaigns form part of its compliance strategy and are intended to encourage voluntary correction of tax irregularities before formal enquiries are opened

The rise from approximately 27,700 communications in 2023-24 to over 81,000 in 2025-26 is therefore consistent with a broader pattern of increasing HMRC compliance activity rather than an isolated cryptocurrency initiative.

Some taxpayers, and their advisers, mistakenly assume that a nudge letter is simply an educational exercise. Whilst officially these letters are designed to encourage taxpayers to review their affairs, they are generally issued because HMRC has identified data suggesting a potential risk, discrepancy or omission. HMRC’s own guidance confirms that OTM campaigns are used to influence taxpayer behaviour and promote compliance on a large scale.

Recent campaigns have targeted, amongst others:

• Cryptoasset transactions
• Offshore income and gains
• Property income
• VAT registration thresholds
• R&D claims
• Associated companies
• Non-domicile issues
• Business asset rollover relief claims

The crypto campaign therefore sits within a much wider compliance programme rather than being a special case.

Why HMRC is targeting cryptocurrency

Cryptocurrency presents a unique compliance challenge because many investors incorrectly assume transactions are anonymous or outside HMRC’s visibility.

In practice, HMRC already receives substantial information from domestic and overseas sources and has been running cryptoasset compliance campaigns for several years. HMRC have specifically targeted taxpayers whom HMRC believes may have underpaid income tax or capital gains tax arising from crypto transactions.

Many taxpayers also misunderstand the tax rules. For UK tax purposes:

• Selling cryptocurrency for cash may trigger a capital gain.
• Exchanging one cryptocurrency for another may trigger a capital gain.
• Using cryptocurrency to purchase goods or services may trigger a capital gain.
• Certain activities such as mining, staking or trading may generate income tax liabilities.

Consequently, many of the liabilities identified by HMRC are likely to arise from simple non-compliance or misunderstanding rather than deliberate evasion.

HMRC is already receiving increasing amounts of third-party financial information through international data exchange regimes. It is thought that information is being received from overseas financial institutions across more than 100 jurisdictions and is already feeding into HMRC’s compliance campaigns and offshore nudge letter activity.

This is likely to increase the number and sophistication of compliance interventions.

What to do if you receive an HMRC crypto tax letter

Receiving a OTM doesn’t automatically mean non-compliance but nevertheless, recipients should not ignore such correspondence.

Where a genuine disclosure issue exists, a timely voluntary disclosure can often significantly reduce penalties compared with waiting for HMRC to commence a formal compliance check. Any approach to HMRC to make a disclosure must be undertaken by a suitably qualified professional in tax investigations. The potential for an adviser who is not a tax investigations specialist to get this wrong could have significant consequences for the taxpayer with lasting effects.

The key takeaway is not that HMRC is launching mass investigations into cryptocurrency investors, but that HMRC is increasingly using sophisticated data-driven compliance techniques and large-scale OTM campaigns to identify non-compliance and encourage voluntary correction.

Taxpayers who have engaged in cryptoasset transactions should treat any HMRC communication seriously, undertake a thorough review of their tax position and seek specialist advice where uncertainty exists. In the current compliance environment, nudge letters are often best regarded as an opportunity to correct matters before HMRC deploys its full investigatory powers and potentially punitive penalties.

Gravita has specialist tax investigation experts who can help with this.