UK tax office seeks tools to track cryptocurrency tax evaders

The United Kingdom’s tax agency, Her Majesty’s Revenue and Customs (HMRC), has opened its doors to contractors seeking help in curbing cryptocurrency-related tax evasion.
Last week, the tax agency’s cybercrime team published a public contract worth £100,000 (about $131,000) for an intelligence gathering technology that aggregates information through cluster analysis. Through this technology, the team hopes to be able to effectively link digital asset transactions to service providers. The agency is reportedly moving away from manual analysis and unverifiable online tools to gain a clearer understanding of cryptocurrency-related tax evasion and the mechanisms that allow it to thrive.
Surveillance is a big issue for HMRC
The cybercrime team was set up to protect the UK government tax agency from fraud. Due to the sheer volume of traffic it receives as a vital government platform, HMRC's repayment system has long been criticized for being vulnerable to malware and distributed denial of service (DDoS) attacks.
The agency plans to use this tool to seamlessly track and analyze large digital assets. At the same time, it will also consider privacy-oriented coins that are difficult for regulators to monitor, such as DASH, ZCash, and Monero.
“Crypto assets such as Bitcoin and Ethereum provide a means of transferring value between interacting parties,” the contract reads in part. “These services are increasingly being used for a variety of purposes, including international remittances, sales of digital services, paying employees, tax evasion, and money laundering.”
Interested parties are expected to submit applications from next week, but no later than January 31, 2020. HMRC is also reportedly aiming to award the contract and start work as early as February 17, 2020.
Cryptocurrency tax laws are beginning to take shape
The tax agency has been very particular about its treatment of cryptocurrencies, especially its recent designation as a form of currency. In November last year, the tax agency updated its tax policy documents for businesses and individuals, explicitly stating that digital assets should not be considered a form of currency.
For individuals, the policy document treats cryptocurrency activities as personal investments, which are still subject to capital gains tax, and when cryptocurrencies are sold for fiat currency, capital gains tax should be paid to HMRC. The same applies if the digital assets involved are used to purchase goods, given to others, or exchanged for other assets. In addition, if employees are paid in the form of cryptocurrencies, they should also pay income tax. The policy also covers mining, treating it as a security, although it points out that the factors that determine its classification will be reviewed.
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