In November 2023, the United Kingdom (“UK”) and 47 other jurisdictions agreed to implement the Organisation for Economic Co-operation and Development (“OECD”) Crypto-asset Reporting Framework (“CARF”) into domestic law.  

The CARF was developed from a proposed package of rules put forward by the OECD during 2022 to address the tax compliance issues of crypto-assets and to ensure the continuation of the achievements of the Common Reporting Standard (“CRS”) for global tax transparency. The CARF places obligations on reportable crypto-asset service providers (“RCASPs”) to collect details on crypto-asset users and transactions in crypto-assets and report these details to the applicable tax authority.

The UK Government sought views from stakeholders on the implementation of the CARF in the UK in a public consultation between 6 March 2024 to May 2024, whilst also addressing certain optional proposals and amendments to the CRS. HMRC invited views in relation to the reporting requirements, due diligence procedures and the workings of a penalty framework in respect of the UK’s implementation of the CARF.

Further details on the consultation are covered in a previous BrassTax article “Another Step Nearer for CARF in the UK” published on 27 March 2024. The CARF was also covered in the articles “Update: OECD Crypto-Asset Reporting Framework” published in BrassTax on 29 November 2022 and in the article “UK Spearheads Global Commitment to the Crypto-Asset Reporting Framework” published in BrassTax on 20 December 2023.

Outcomes of the consultation

The majority of responses to the UK Government’s consultation were in favour of the CARF proposals, which identified the inclusion of the UK as a reportable jurisdiction. Following the positive responses to the consultation, the UK Government confirmed on 30 October 2024, in the Autumn 2024 Budget, that it will introduce UK domestic reporting as part of its implementation of the CARF.  As part of the Autumn 2024 Budget measures, HMRC published a summary of responses to the consultation and draft CARF regulations (the “Regulations”).[1]

The common themes in the responses to the consultation were more clarity on the reporting requirements and the specific terms and definitions, and greater consistency towards the application of the due diligence procedures and penalty regimes.

Several respondents requested additional guidance on acceptable methods of due diligence. For instance, the CARF requires that RCASPs confirm the reasonableness of the information provided on self-certifications and this requirement was extended to the CRS. Respondents wanted further information on defining the “reasonableness” of a self-certification.  Furthermore, respondents questioned how to report customers with no tax identification number (“TIN”).  Self-certifications require a TIN to confirm the country of residence, and an issue specific to the UK is the lack of a universal TIN. 

HMRC did not directly address the questions raised in relation to the approach to TINs and the “reasonableness” tests.  HMRC have, however, stated that guidance will be provided regarding the verification information and acceptable methods of verification. HMRC also confirmed that it will not mandate for a set format for self-certifications.

The issues addressed in the Regulations

The Regulations provide further details of due diligence, record keeping and electronic reporting obligation requirements for UK RCASPs. The Regulations also provide for notification by RCASPs to users informing them that a report has been made.

UK RCASPs are required to register with HMRC by the later of 31 May 2027 and the last day of the period of 30 days from when they qualify as an RCASP, or notify HMRC confirming that they have completed their obligations as an RCASP in another jurisdiction with which they have a similar nexus.  Further details are also set out on the requirement for crypto-asset users to provide a valid self-certification and the penalties for the failure to do so.

The Regulations also cover details on penalties for the failure to register, comply or report, including for inaccurate or incomplete reports. However, the penalty amounts are not specified.

The Regulations will be of interest to RCASPs, which facilitate the provision of crypto-assets and transactions with crypto-assets, organisations and bodies that represent RCASPs or their advisors and crypto-asset users.

The UK Government continues to seek technical feedback on the draft regulations until 10 January 2025. The CARF will apply in the UK from 1 January 2026, with the first reports due under the CARF for the 2026 calendar year by 31 May 2027.

[1] https://www.gov.uk/government/consultations/draft-regulations-the-cryptoasset-service-providers-due-diligence-and-reporting-requirements-regulations-2025.