The New Crypto-Asset Reporting Framework (CARF)

Personal Tax Dec 12, 2024

The Organisation for Economic Co-operation and Development (OECD) has introduced the Crypto-Asset Reporting Framework (CARF) as part of its ongoing efforts to enhance global tax transparency. While CARF introduces new standards for reporting, it is important to note that the taxation and reporting of crypto-assets are not new concepts for UK taxpayers. HM Revenue & Customs (HMRC) has long required individuals to report crypto-asset gains and income, ensuring compliance with existing tax obligations. The CARF specifically addresses the challenges posed by crypto-assets, a rapidly growing sector often associated with tax non-compliance. This article explores the framework’s implementation, the implications for UK taxpayers, and the steps needed to ensure compliance.

Overview of CARF

The CARF establishes a standardized global framework for reporting crypto-asset transactions. It requires crypto-asset service providers to collect and share data on transactions with tax authorities. This initiative is designed to complement the Common Reporting Standard (CRS), which already facilitates the exchange of financial account information between jurisdictions. However, CARF is tailored specifically to the unique characteristics of crypto-assets, covering not just cryptocurrencies like Bitcoin and Ethereum but also stablecoins, non-fungible tokens (NFTs), and certain decentralized finance (DeFi) activities.

CARF Implementation Timeline in the UK

The UK government has committed to implementing CARF, with significant milestones as follows:

Collection of Data: From January 1, 2026, UK-based Reporting Cryptoasset Service Providers (RCASPs) must begin collecting detailed information about their customers’ crypto-asset activities.
Reporting Deadline: The first set of reports, covering activities during the 2026 calendar year, is due by May 31, 2027.
Scope: Reporting requirements apply to both UK residents and non-UK residents engaging with UK-based RCASPs.

The phased implementation aims to give service providers and taxpayers sufficient time to prepare for compliance. The adoption of the CARF means that in addition to information from platforms within the UK, HMRC will receive information from overseas crypto platforms with UK users. International reporting under the CARF is to take place from 2027.

Obligations for UK Taxpayers

Reporting Requirements

Under CARF, RCASPs will report detailed data to HM Revenue & Customs (HMRC), including:

Transaction Types: Sales, exchanges, and transfers of crypto-assets.
Valuation Information : The value of crypto-assets at the time of the transaction.
Customer Data: Identifiable information such as names, addresses, and taxpayer identification numbers.

HMRC will exchange this data with other jurisdictions' tax authorities, ensuring transparency and aiding in the identification of tax non-compliance.

Tax Implications

Disposing of crypto-assets—whether through selling, exchanging, or using them to pay for goods and services—can trigger Capital Gains Tax (CGT) liabilities. Additionally:

Capital Gains Tax: Tax is payable on the profit made from the disposal of crypto-assets if total gains exceed the annual allowance (£3,000 for 2024/25).
Income Tax: Crypto-assets received as income, such as mining rewards, staking yields, or airdrops, are taxable as income. The applicable rate depends on the taxpayer’s overall income.

Please refer to our previous article on the taxation of cyrpto-assets in the UK for more details.

Record-Keeping

To comply with CARF and existing UK tax regulations, taxpayers must maintain detailed records of all crypto-asset transactions, including:

Dates of transactions.
Values in GBP at the time of the transaction.
Details of parties involved in exchanges or transfers.
Wallet addresses and transaction IDs.

Penalties for Non-Compliance

Failure to comply with CARF’s reporting requirements or accurately declare crypto-asset gains and income can lead to severe consequences:

Financial Penalties: HMRC imposes fines for inaccuracies or omissions in tax filings.
Interest on Unpaid Tax: Late payment of taxes incurs additional charges.
Criminal Investigations: In cases of deliberate evasion, HMRC may initiate criminal proceedings.

The UK government has already increased its focus on crypto-assets, employing “nudge” letters to encourage taxpayers to review their filings and voluntarily disclose underreported income or gains.

Steps for UK Taxpayers to Ensure Compliance

Stay Informed

Taxpayers should regularly update themselves on CARF developments and other crypto-asset-related tax obligations. The dynamic nature of this space means new rules may emerge.

Seek Professional Advice

Given the complexity of crypto-asset taxation, consulting a tax professional or advisor is highly recommended. Experts can:

Identify applicable tax obligations.
Assist with accurate reporting.
Help optimize tax outcomes.

Leverage Technology

Numerous software solutions and tools are available to track and record crypto-asset transactions. These tools can:

Automatically calculate gains and losses.
Provide detailed transaction histories.
Generate reports compliant with HMRC requirements.

One such tool that we recommend to our clients is Koinly. As a TaxAssist client you can benefit from reduced rates. And if you do a more than just a few transactions per year or if you use multiple exchanges, using such tools is a must as errors will now be caught a lot more easily by HMRC.

Conclusion

The implementation of the Crypto-Asset Reporting Framework represents a significant shift in how crypto-assets are taxed and monitored globally. For UK taxpayers, it underscores the importance of transparency and compliance in crypto-asset transactions. By understanding their obligations under CARF, maintaining detailed records, and seeking professional advice, taxpayers can avoid penalties and ensure they meet their responsibilities.

As the January 2026 implementation date approaches, proactive preparation will be essential for both taxpayers and crypto-asset service providers. With global cooperation to combat tax evasion intensifying, CARF is set to play a pivotal role in shaping the future of crypto-asset taxation.