With the global crypto bull market in the ascendent again, the rapid rise of crypto-asset values has exposed significant gaps in the UK's tax reporting regime and elsewhere.
Whilst the UK will introduce the Organization for Economic Cooperation and Development's crypto-asset reporting framework ('CARF') with effect from 1 January 2026, this move has been in the making for some 3 years. In November 2023, the UK alongside a coalition of nations committed to adopting CARF as part of an international effort aimed to safeguard global tax transparency gains threatened by the crypto market's rapid expansion.
This move is intended to underscore the UK's commitment to minimising the amount of uncollected tax in the crypto market, a sector long characterised by its challenges to tax collection. For crypto-asset service providers and individual users alike, CARF introduces significant new obligations, marking a shift toward greater transparency and it is hoped greater tax receipts in the various international jurisdictions that have adopted CARF.
This article explores the historical context leading to CARF's adoption, CARF's purpose and its mechanics and the potential implications for stakeholders in the UK's crypto ecosystem and in the other international jurisdictions which have adopted it.
Historical context
The rapid growth of crypto has posed unique challenges for tax authorities in all jurisdictions. Decentralised and often anonymous, crypto transactions have historically been difficult to trace and expected tax revenues have lagged internationally. In the UK, HMRC has attempted to be proactive in addressing this issue by laying the groundwork for CARF through earlier initiatives, such as introducing a voluntary disclosure facility and updating self-assessment tax return templates to reflect their desire to increase tax revenue from crypto transactions. These earlier initiatives had not fully addressed the scale of crypto-related tax leakage and instead highlighted the need for a more robust system.
What is CARF?
CARF is a standardised, OECD-led regime designed to enhance tax compliance by mandating the collection and reporting of crypto transaction data. In the UK, CARF requires UK-based Reporting Crypto-Asset Service Providers ('RCASPs') to submit detailed user and transaction information to HMRC, who may then share it with other jurisdictions and vice versa.
Core elements
Scope
CARF targets crypto-assets used for payment or investment, excluding central bank digital currencies and certain NFTs.
RCASPs
These include centralised exchanges such as Coinbase, brokers and dealers facilitating transactions for users.
Reporting requirements
RCASPs must collect and verify the following data for:
- Individual users: name, address, date of birth, country of residence, national insurance number (for UK residents) or a tax identification number (for non-UK residents).
- Entity users: business name, address, company registration number (for UK entities) or tax identification number (for non-UK entities)
- Transaction date: the specific crypto-asset, the transaction type (eg buy or sell), number of units and fiat value.
Who does CARF affect?
CARF impacts a wide range of players in the crypto ecosystem:
- UK-based RCASPs: these will be directly accountable for reporting to HMRC.
- Foreign RCASPs (who are in a 'CARF'-adopting country): data on UK users may be shared with HMRC via cross-border sharing.
- Users: both UK and non-UK residents must provide identification details to RCASPs, linking their transactions to tax obligations.
Practical implications
- Penalties and enforcement: non-compliance risks substantial fines and the Criminal Finances Act 2017 empowers HMRC to pursue RCASPs that fail to prevent tax evasion by users.
- Deadlines and penalties: The first reporting deadline is 31 May 2027 for 2026 transactions. Mistakes or omissions could trigger fines of up to £300 per user per instance.
Preparing for CARF
To comply with CARF in the UK, businesses should:
- Assess whether they qualify as an RCASP.
- Upgrade systems to handle data collection and reporting.
- Enhance infrastructure to verify user identities and transaction details diligently.
- Prepare for reporting to HMRC by the 31 May 2027 deadline, which will require online registration by 31 January 2027 and informing users of reporting obligations.
Whilst the focus of CARF is on RCASPs, individual users should ensure they cooperate with RCASPs or potentially face HMRC inquiries directly themselves.
The global context and our international coverage and expertise
The UK is not alone in adopting CARF. Over 60 jurisdictions have committed to implementing the framework, with key markets like the United States, Hong Kong, Singapore, Japan and Italy aligning their domestic laws to enhance tax transparency.
Withers is an international law firm, with dedicated crypto and tax specialists in the UK, US, Hong Kong, Singapore, Italy and Japan. Consequently, Withers is able to offer tailored advice to navigate CARF's complexities in each of these jurisdictions and to see the overarching international picture too.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
