UK crypto companies should face user data or fines based on new HMRC rules

UK digital asset service providers may need to begin reporting user data to revenue and customs (HMRC) under Ma by 2027. Regulators revealed this in a recent announcement.

According to HMRC, which is responsible for tax collection, the country employs the Economic Development Agency (OECD) Crypto Asset Reporting Framework (CARF), which will extend it to domestic reporting.

Under the new framework, regulators expect all companies classified as reporting in the UK-based Crypto Asset Service Providers (RCASPS) to collect and report user data. Therefore, data collection is expected to begin by January 1, 2026, with the first report being May 2027.

The statement said:

“For UK-based RCASPs, we must begin collecting information about users and their transactions from January 1, 2026. We recommend that you start collecting information earlier in order to prepare new rules.”

Cryptographic entities considered RCASP include exchanges, dealers and brokers. Due to the Based-in-cuk standard, the company must either be incorporated into the UK, pay taxes domestically, manage its business there, or have a business in the country. One of these four conditions is sufficient.

However, cryptographic entities operating in multiple countries where CARF applies must only be reported in one country where you are a tax resident. If they are tax resident in multiple countries, they can report to either country.

Cryptographic entities submitting KYC information and transaction data to authorities

On the other hand, the framework means that cryptographic service providers need to collect user personal data. Most centralized exchanges already collect this data. This includes your name, date of birth, address and country of residence.

Additionally, crypto companies must obtain national insurance or unique taxpayer references for UK residents and obtain tax identification numbers for non-residents. Companies may need to provide information about their control.

Additionally, Crypto entities must also collect data about transactions, such as their value, crypto assets, and transaction type. All this information allows regulators to connect each taxpayer to their account.

Entities are expected to perform due diligence on the information they obtain, and if they submit inaccurate, unverified or incomplete data, they may face a penalty of up to £300 per user. Failure to report or delayed reporting can also attract similar sanctions.

Interestingly, Crypto UK, one of the nation’s leading trade associations for crypto assets, praises the move. In the post, HMRC has developed guidance based on industry inputs, saying it is a step towards a regulated ecosystem.

Cryptocurrency trading monitoring is on the rise worldwide

On the other hand, the new framework is not unique to the UK. In fact, over 60 countries, including the US, Australia, Canada, South Africa and many European countries, are all working on implementing CARF domestically. This framework is expected to enable international cooperation between countries in crypto transactions.

The main reason for reporting is to tackle cryptographic use for illegal purposes and allow for proper taxation of crypto assets, but it also highlights the global rise in surveillance of cryptographic activity.

The EU recently announced plans to introduce new anti-money laundering measures that would ban crypto entities from handling anonymous wallets and privacy coins. The new rules require validation of transactions over 1,000 euros.

Privacy Coin has long faced scrutiny, but considering that all crypto addresses are anonymous by default, the proposal to ban anonymous crypto accounts has been raised questionable. However, many believe that the rules apply only to central exchanges, and that inappropriate wallets will not be affected.

Still, the rise in cryptocurrency transaction surveillance remains a concern for privacy experts and crypto stakeholders who believe it could hinder innovation.