Consultation outcome

Cryptoasset Reporting Framework, Common Reporting Standard amendments, and seeking views on extension to domestic reporting - summary of responses

Updated 30 October 2024

Executive Summary

As a jurisdiction that plays host to an active cryptoasset market, the UK signed the November 2023 Joint Statement with international partners, declaring their intent to deliver the Cryptoasset Reporting Framework (CARF) in time for exchanges in 2027.

Following an announcement at Spring Budget 2024, the previous government published a consultation on the implementation of the Organisation for Economic Co-operation and Development (OECD) and amendments to the Common Reporting Standard (CRS). The consultation also sought views on extending both regimes to include domestic reporting.

The implementation of the CARF requires Reporting Cryptoasset Service Providers (RCASPs) to report details of their users and transactions to tax authorities, who can use the information to detect and tackle tax non-compliance. The consultation invited views on the scope of the rules, the implementation of the practical details, and areas of further guidance necessary. The consultation also proposed a new penalty regime to enforce the rules.

The CRS requires financial institutions to report information on non-resident account holders to HMRC. Proposed amendments will change the scope of the CRS regime, introduce mandatory registration of reporting Financial Institutions (FIs) and change the penalties regime, aligning it with the Model Rules for Digital Platforms (MRDP) regime.

The government received 33 written responses from stakeholders and held a number of meetings. In general, respondents were supportive of the proposals and recognised the benefits of an OECD-led common approach to reporting on cryptoassets, although there was a range of views on some of the specific questions posed in the consultation.

On the scope of the CARF and the updates to the CRS, respondents offered suggestions for areas where further clarification would be useful, including defining terms. This was particularly applicable to the CARF, where the market is evolving at a rapid pace. The government understands that further explanations are needed in some areas, so HMRC will continue to work with stakeholders to develop detailed guidance on the points raised.

Respondents also highlighted some additional impacts as a result of the implementation of these measures. The government welcomes these contributions and will consider them further.

Several respondents raised comments, both positive and negative, about the proposed penalty regime and suggested amounts for CARF penalties and for the updated CRS which is aligned with the MRDP reporting regime. Respondents made various suggestions about how these penalties could work in practice and the impact they might have on RCASPs and reporting FIs. The government will take all comments into consideration and continue to consult with stakeholders.

The majority of respondents were in favour of the proposal to extend the CARF by including the UK as a reportable jurisdiction, although some respondents had concerns about implementing it at the same time as the international CARF. The government welcomes this support from stakeholders and has decided to introduce domestic reporting as part of the implementation of the CARF, providing a range of benefits as outlined in the consultation document such as streamlining third party reporting requirements and more efficient use of HMRC and taxpayer time.

Respondents’ views on the introduction of domestic CRS were more varied. The government recognises that the issues raised need more consideration and HMRC will work with stakeholders over a longer period to consider how to address these issues.

The government is grateful to all stakeholders who responded in writing to this consultation, as well as to those who participated in round table events and meetings. As explained in the next steps section, the government has published draft regulations alongside this response document for an 8 week consultation and welcomes comments on them to ensure the legislation works as intended.

HMRC will continue to work with stakeholders to understand some of the areas of concern raised in the consultation so that these views can be taken into account when developing the systems and processes necessary for implementation. HMRC will also engage with stakeholders to discuss and produce the detailed guidance that will accompany the implementation of the CARF and amendments to the CRS.

Introduction

Consultation

At Spring Budget 2024, the previous government announced that it would consult on the implementation of the Cryptoasset Reporting Framework (CARF) and changes to the Common Reporting Standard (CRS). The consultation set out the details of the CARF and the proposed changes to the CRS and invited views on the UK implementation of both frameworks. Separately, the consultation sought views on the benefits and drawbacks of requiring domestic reporting by UK Reporting Cryptoasset Service providers (RCASPS) for the CARF and UK financial institutions for the CRS. Under this domestic reporting, HMRC would receive information on assets held by UK taxpayers in UK RCASPs and UK financial institutions.

International agreements on the automatic exchange of tax information (AEOI), such as the CRS and the US Foreign Account Tax Compliance Act (FATCA), have been key tools in tackling offshore non-compliance. The CARF and the amendments to the CRS were adopted to prevent gains in global tax transparency being eroded by developments in financial technology and the emergence and growth of the cryptoasset market. The CARF provides for the automatic exchange of tax-relevant information on cryptoassets and ensures a common international framework for reporting. The changes to the CRS extend reporting to new asset classes and strengthen the due diligence and reporting requirements.

A total of 33 written responses were received from businesses, advisers and representative bodies. The main points made are summarised in the responses section below. Meetings were also held with businesses, advisers, and representative bodies to discuss some of the key issues. The government is grateful to those who responded in writing to the consultation and to those who participated in meetings.

Conclusions

The government is committed to implementing the OECD CARF and the amendments to the CRS. The government acknowledges that industry and advisers will need greater clarity about some details of the CARF and the changes to CRS. The government has published the draft regulations implementing the new rules alongside this document. As explained in the ‘Next Steps’ section, the government will prepare draft guidance and work with stakeholders to ensure this covers the questions they have raised and other queries they may have.

On the separate questions of extending the OECD rules to include domestic reporting, the government has decided at this stage to extend the CARF to cover reporting on UK customers by UK businesses, with effect from the same time period. At this stage, the government has decided not to extend the CRS in the same manner and will continue to examine the issues raised in this consultation.

Implementation date

When the UK signed the November 2023 Joint Statement, it declared its intent to deliver the CARF in time for exchanges in 2027. The CARF, including the extension to domestic reporting on UK customers, will apply from 1 January 2026. This means that individual and entity RCASPs in the UK will be expected to collect the information specified by the CARF on UK and non-UK customers from 1 January 2026, with the first reports covering the 2026 calendar year due to be reported by 31 May 2027.

The amendments to the CRS will also apply from 1 January 2026, with the first reports covering the 2026 calendar year due to be reported by 31 May 2027.

On extending reporting under the CRS to the UK customers of UK financial institutions the government will continue to engage with interested stakeholders to fully understand the issues and options.

Responses

Cryptoasset Reporting Framework

Scope and definitions

Question 1: Do you consider the scope of, and definitions contained within, the OECD CARF rules to be sufficiently clear? Are there any areas where additional guidance would be helpful?

There were 16 responses to this question, most of which contained suggestions for areas or terms where more clarity or additional guidance would be helpful.

Some respondents suggested that further clarity is needed on the scope and definition of an RCASP. It was suggested that HMRC should provide cryptoasset market-specific examples of where a provider falls into scope for the CARF, and examples of where they do not. Respondents also sought clarity on HMRC’s interpretation in specific circumstances where there may be multiple RCASPs involved in effectuating transactions. It was also suggested that HMRC could provide rulings to stakeholders on specific fact patterns to judge whether they or their products are in scope.

Several respondents requested additional guidance on establishing when individuals or entities have ‘control or sufficient influence’ in the context of decentralised services, including decentralised exchanges (DEX) and other decentralised finance (DeFi). Some respondents requested software developers and non-custodial platforms be categorically excluded from the definition of RCASP.

Several respondents requested additional guidance on the definition of a relevant cryptoasset. Many respondents focused on Non-Fungible Tokens (NFTs) and requested further guidance on when they can be used for payment or investment purposes. Some respondents also requested additional guidance on tokenisation, particularly where the asset that can be tokenised is already subject to existing regulatory requirements, or where reporting requirements may be duplicated across CARF and CRS. Several respondents also requested more guidance regarding the interaction between CARF and CRS in relation to Stablecoins and Specified Electronic Money Products (SEMPs).

Several respondents requested additional guidance on the definition of a Reportable User. This included where a customer is also an RCASP, and on the “managed by” rules where respondents highlighted the need for guidance on any difference in self-certification requirements for certain investment entities between CRS and the CARF.

Government response

The government understands that further guidance is needed on various definitions in the OECD CARF rules. HMRC will work with businesses, advisers, and representative bodies in a CARF Working Group to produce guidance that is clear, comprehensive, and effective. We will ensure the final guidance includes material to address the issues and examples raised by the consultation responses.

The government intends to draw the scope of the definition of an RCASP by reference to the activities identified in the rules and commentary. It continues to believe this approach delivers outcomes that are most consistent with the underlying policy rationale. Isolating certain operating models for a different treatment could give rise to distortive outcomes whereby comparable businesses are treated differently and mean businesses face strong incentives to change their commercial behaviour.

As such, the government will not exclude software developers or non-custodial platforms from the definition of RCASP where all relevant factors are met, as this would be contrary to the CARF rules and commentary and the relevant Financial Action Taskforce (FATF) guidance. Following FATF guidance, while software programs themselves are not RCASPs, those who retain control or sufficient influence over such software may be RCASPs. It is therefore necessary for individuals and entities to consider if they may be RCASPs by virtue of having control or sufficient influence over a trading platform.

HMRC guidance will be consistent with and, where appropriate, make reference to practical examples in the OECD commentary on the CARF and to interpretative guidance published by the OECD.

Reporting requirements

Question 2: Are there any areas where additional guidance would be helpful on the nexus criteria?

There were 17 responses to this question.

Several respondents called for guidance on interpreting the nexus criteria, with a focus on the definition of’management’, ‘regular place of business’ and ‘branch’ in digital and decentralised contexts. Respondents advised guidance on the distinct reporting responsibilities in scenarios where transactions are effectuated through branches would be helpful. One response requested guidance for business patterns where headquarters are not identified or disclosed.

Several respondents requested guidance to prevent duplicate reporting where two RCASPs are multiple entities in a group, or multiple individuals control a decentralised CASP. Respondents asked that where possible, RCASPs should be given the flexibility to choose which jurisdiction to report in.

One response highlighted the need for an RCASP to be able to evidence it is reporting in a country where it has a different nexus. One response highlighted the risk that decentralised platforms could be used to circumvent the nexus criteria and help customers avoid being reported under the CARF.

Government response

The government will continue to work with industry and advisers to ensure that any guidance produced addresses as many of the issues raised in the consultation as possible whilst remaining consistent with the CARF.

The government will also work with stakeholders to build guidance which addresses market-specific fact patterns and addresses any issues raised in the consultation about the nexus criteria.

Question 3: Are there any areas where additional guidance would be helpful on reportable information?

There were 16 responses to this question, with all responses offering suggestions of areas where additional guidance would be helpful.

Several responses requested further definitions and guidance on transaction types. They focused on staking, loans, wrapping, on-chain and off-chain transactions, and the basic transfer of a cryptoasset from one wallet to another.

Several respondents highlighted the difficulty RCASPs might face in valuing cryptoassets. They requested guidance on hard-to-value cryptoassets, which are not exchanged for fiat currency and do not have an obvious market value. Respondents suggested that for NFTs, RCASPs could use a small, notional amount or minimum reasonable market value.

Some respondents suggested that reporting transactions on a cryptoasset-by-cryptoasset basis, particularly in relation to tokenised funds or NFT, would provide data at a far more granular level than tax authorities, investors or CASPs would benefit from. They suggested that RCASPs should be allowed to report using broader categories of token type. A few respondents also highlighted that there isn’t market-wide agreement on universal names or identifiers for cryptoassets and proposed the government considers the use of the Digital Token Identifier (DTI), alongside the continued use of ISIN codes for tokenised financial instruments.

Some respondents highlighted the need for guidance for RCASPs on data protection and security. They requested guidance on how to securely collect, store and transmit information, in order to help RCASPs manage sensitive data responsibly.

A few respondents highlighted that there should be communication and guidance given to RCASPs to raise awareness of the different jurisdictions committed to the CARF compared to those in the CRS, to prevent errors in reporting.

Government response

The government is grateful to respondents for identifying a range of areas where additional guidance would be useful. HMRC will continue to engage with stakeholders to make sure that guidance is produced to support RCASPs to meet their reporting requirements. The final guidance will build on examples in the OECD commentary on the CARF, the XML schema and the Frequently Asked Questions produced by the OECD on this topic.

Regarding the cryptoasset type, it would not be possible for the government to allow broader categories to be used as the CARF requires ‘type’ to be interpreted as a category of cryptoasset where units can be mutually substituted for corresponding units.

Question 4: Do you agree with the government’s proposal to align the timeframe with CRS reporting requirements?

There were 16 responses to this question.

The majority of the responses agreed with the proposal to align the CARF timeframe with CRS reporting requirements, with respondents recognising the benefits of such alignment particularly for those entities who are in both regimes, such as consistency, efficiency, and clarity. Respondents feel this will support and promote increased compliance.

Some respondents, whilst agreeing with the proposal to align CARF reporting dates with CRS, proposed moving the reporting deadline to 30 June so that it would also align with the Bank and Building Society Interest (BBSI) reporting deadline, or to align with other jurisdictions that will implement the CARF. Other respondents agreed with aligning the reporting date with CRS, but emphasised the amount of time the cryptoasset sector may need to prepare for the first reporting date due to the different reporting systems and data sets required. These respondents favoured a delay to the first reporting date and potentially in subsequent, early years of the reporting regime.

Whilst agreeing with the proposal to align the CARF timeframe with the CRS reporting requirements, some respondents highlighted the difficulty that is caused by the UK operating a tax year ending 5 April while the CRS year end date is 31 December.

Some respondents disagreed with the proposal to align the CARF timeframe with CRS reporting requirements, suggesting that to align the reporting deadlines would lead to additional pressure for entities if they had to collate, review, and validate data for different regimes at the same time. One respondent suggested that staggering the reporting of various regimes over a number of months would reduce the pressure on entities and HMRC.

Government response

The government recognises the pros and cons of aligning the CARF reporting dates with those for CRS and notes comments regarding the tax year ending on 5 April. On balance, the government considers that it is preferable to align the CARF timeframe with the CRS reporting requirements to provide consistency for reporting entities.

The government recognises the challenges of implementing a new regime and that RCASPs need time to prepare for the first reporting date. HMRC will work with RCASPs to help them to prepare and make sure they have the support needed to meet this first reporting date.

Due diligence

Question 5: Are there any areas where additional guidance would be helpful on the due diligence rules?

There were 14 responses to this question, with almost all respondents suggesting specific areas where additional guidance would be useful.

Several respondents suggested that further guidance is necessary on the timing of self-certifications in relation to the effectuation of transactions, as well as clarification on the point at which “establishing a relationship” between the RCASP and the user happens.

Several respondents discussed the lack of a universal Tax Identification Number (TIN) in the UK and the issues it may cause for RCASPs who need to confirm a user’s identity and residence status using a tax reference number as part of the due diligence process. They suggested various ways of mitigating this, such as increased HMRC resources in providing support to individual users who are trying to obtain their tax reference number via helplines and online pathways and streamlining the process for individuals to obtain a certificate of residence. They also suggested ensuring a wide range of TINs are accepted to make it easier for RCASPs to fulfil their obligations. One respondent requested guidance for RCASPs in the event that an individual does not have a National Insurance number or a self-assessment Unique Tax Reference.

A few respondents expressed support for other proposed schemes to make obtaining a tax identification number a simpler process, such as the EU Digital ID and the Tax Administration Framework Review (TAFR) proposal for a single TIN for individuals.

Several respondents requested additional guidance on acceptable methods of due diligence, particularly with reference to defining the “reasonableness” of a self-certification. They felt a checklist or list of examples further to the instances referred to in the commentary of Section III of the CARF, would be helpful. They also suggested that guidance on the number of times an RCASP should request self-certification would be useful.

Some respondents highlighted the differences between CRS self-certification requirements and those proposed for the CARF, requesting greater consistency between the CRS, the CARF and other domestic reporting purposes. They also highlighted the different requirements for self-certification across some other tax jurisdictions and requested greater international collaboration with other tax authorities to develop a standardised form.

Government response

The government notes the comments and areas where additional guidance on due diligence would be useful. HMRC will engage with stakeholders on draft legislation and guidance covering due diligence procedures and associated penalties.

In particular, HMRC will ensure guidance is provided on the collection and verification of information and acceptable methods. Guidance will be provided to help clarify what RCASPs must do where a customer does not have a UK TIN, and on the approach to TINs in general.

HMRC does not prescribe a set format for self-certificates under the CRS and will not mandate an approach for the CARF. Whatever form it takes, it must allow the FI or RCASP to complete the relevant due diligence requirements.

Compliance and enforcement

Question 6: Do you agree that, in principle, penalties relating to CARF obligations should be consistent with structure set out above?

There were 13 responses to this question.

Several respondents agreed, in principle, with the proposed structure of penalties and the alignment, where appropriate, with the penalty structure in the MRDP. They commented that HMRC’s approach was balanced and reasonable.

A few respondents disagreed entirely with the penalties structure set out in the consultation and the alignment with the MRDP penalty regime. They expressed a preference for keeping the existing CRS penalty regime rather than increasing the penalties in line with MRDP, as there was no evidence that the CRS penalty regime had led to non-compliance.

Several respondents offered further views on the proposed penalty for not obtaining a valid self-certification. Respondents outlined some of the difficulties that RCASPs will face in trying to obtain valid self-certifications, particularly from pre-existing accounts and from accounts where there is a change of circumstances. They highlighted the challenge of collecting TINs from UK residents, in particular the fact that RCASPs will not be able to validate the accuracy of a National Insurance number. One respondent also requested guidance for RCASPs on dealing with jurisdictions where TINs are not commonly used. Respondents suggested that a penalty for failure to attempt to obtain a valid self-certification would be more reasonable.

A small number of respondents discussed the importance of behavioural mitigation when determining penalties, favouring the current compliance approach where deliberate non-compliance incurs a more severe penalty than a mistake without taking due care.

A few respondents suggested a ‘grace period’ or penalty abatement regime for the initial years of the CARF to acknowledge the large amount of data that RCASPs will have to process. They suggested the compliance process could focus initially on warnings by HMRC, with penalties implemented after a suggested two-year period.

One respondent commented on the penalty for failure for an RCASP to complete mandatory registration, agreeing that it makes sense, but highlighting that some providers may not know that they are in scope and need to register. They suggested communications to raise awareness among the cryptoasset community.

One respondent commented on the proposed penalty for failure to notify individual reportable persons that the RCASP has submitted information about them to HMRC that may be exchanged with another jurisdiction. They welcomed this proposed penalty but pointed out that RCASPs currently have no obligation to provide this information to reportable users and that the CARF does not contain a proposal to incorporate this obligation.

One respondent requested clear guidance on how the penalty regime will be implemented and enforced, including the details of any appeals procedures.

Government response

The government is satisfied that the proposed penalties structure, aligned with the penalty structure in the MRDP, is appropriate and proportionate. The government has considered the comments made by respondents and thought about how the penalty regime will work in more detail, taking into consideration the penalty regimes from other jurisdictions. HMRC has set out details of all proposed penalties and processes in the draft regulations.

The government considers the proposed penalty for failing to obtain a self-certification is necessary to ensure the rules can be properly enforced and that RCASPs obtain self-certification as required. HMRC will work with stakeholders on the details of this penalty as the regulations are developed.

The government will make sure the requirement to notify individual reportable persons is made clear in regulations and will work with RCASPs on guidance in this area.

Question 7: Do you think that the penalty amounts in the MRDP are appropriate for the CARF?

There were 11 responses to this question.

Many respondents agreed that it is sensible to have a consistent penalty regime across the different AEOI regimes. However, a majority of respondents disagreed with aspects of the MRDP penalty amounts and their application to CARF. In particular, they viewed some of the amounts as too high when applied to large multiples of transactions, such as the amount for each instance of late reporting which could result in very large fines in a short period of time.

One respondent commented that penalties should be applied at a customer level rather than at transaction level. This would prevent excessive penalties being charged for the same error across a number of transactions/accounts by the same customer.

Many respondents suggested there should be a penalty cap for per account penalties which could mitigate against very large penalties resulting from a system or process error that affects a large number of accounts. Some respondents went further and stated that all penalties should include a maximum penalty cap, and that this cap should be variable according to the size of the RCASP so that smaller RCASPs would not be subject to a disproportionately large penalty.

Several respondents preferred penalties that are a percentage of revenue rather than a flat fee, stating that this would improve compliance by acting as an incentive to obtain self-certifications. They also considered flat fee penalties as inappropriate due to the variation in size, turnover and profit of RCASPs, stating that a flat-rate penalty regime would disproportionately impact smaller RCASPs.

One respondent disagreed with the application of due diligence penalties as they are applied in the MRDP, stating that a seller is more reliant on a digital platform, and therefore likely to be more responsive than many individuals trading cryptoassets. As such, the respondent requested that penalties for self-certification should only be charged on new accounts, and that for accounts that pre-exist the CARF, the RCASP should not be penalised if they have made every attempt to obtain a self-certification from a customer.

One respondent also suggested that where an RCASP is to be penalised under both CARF and CRS 2.0, they should only be penalised by one regime.

Government response

The government considers that penalty amounts should be reasonable and proportionate, but also high enough to act as an effective deterrent. The government has considered the comments made by respondents and believes that the penalty amounts detailed in the MRDP are appropriate for the CARF. As with MRDP, the penalty regime for CARF will allow for mitigation of the penalty amounts to ensure that they are fair and proportionate taking account of the circumstances. Where the penalty regime deviates from the MRDP, such as the penalty for failure to obtain a valid self-certification, HMRC will provide further details and guidance. The full outline of the proposed penalties and processes is detailed in the draft regulations. Please see the response to question 8.

Question 8: What additional strong measures would be appropriate to ensure valid self-certifications are always collected for Crypto-Users and Controlling Persons?

There were 10 responses to this question.

One respondent stated that the proposed regime is sufficient, with no further strong measures necessary. However, most respondents suggested additional strong measures, believing that they may be necessary to ensure that valid self-certifications are obtained.

Several respondents emphasised the need for clear HMRC communications regarding the need for self-certification under the CARF so that individual taxpayers can be well-informed of their responsibilities, and they suggested different methods for this. Respondents highlighted the nature of the individual consumers who may have to complete self-certification and suggested that guidance and information provided to them directly from HMRC may reassure them that the information is necessary, and not part of any ‘phishing’ scam.

One respondent suggested that HMRC could collaborate with the private sector to increase compliance, particular for self-certification requirements. They suggested that forums such as the Joint Money Laundering Committee have been a successful method of information sharing, and that HMRC and the OECD could look to develop something similar.

Some respondents suggested that blocking transactions on an account or preventing the use of services until a valid self-certification had been received was a sensible approach. One respondent also suggested that this is an approach that lends itself to the cryptoasset industry, as they have the capability to collect and validate the information digitally. Respondents referred again to the importance of HMRC communications and guidance to individuals and RCASPs to set out their obligations clearly.

Other respondents did not agree with the measure of blocking accounts or preventing transactions when a valid self-certification is not obtained. They instead suggested methods such as imposing penalties on cryptoasset users and controlling persons and a withholding tax on transactions conducted without a valid self-certification.

Government response

The OECD commentary to the CARF rules explains that strong measures are required to ensure that RCASPs don’t effectuate transactions without having received a valid self-certification. The draft regulations include penalties for failure to apply due diligence procedures. Where there is a specific failure to obtain a valid self-certification by an RCASP an elevated penalty is being considered. This is considered necessary as a substantial deterrent (as envisaged by the OECD commentary) to ensure that valid self-certifications are collected.

The government is committed to ensuring that any additional strong measures are proportionate and will consider all suggested options. The government has set out what we think are proportionate but effective measures in the draft regulations and will develop guidance, following further discussions with stakeholders.

The government recognises the need for clear HMRC communications about self-certification under the CARF and will make sure that a range of platforms are used to issue guidance and advice to individuals and RCASPs.

HMRC will discuss this approach with business as part of the continuing engagement in preparation for the implementation of the CARF.

Assessment of impacts

Question 9: What additional one-off or regular costs do you expect to incur to comply with the requirements of the CARF? Please provide any information, such as costs, staff time or number of Reportable Persons/RCASPs affected which would help HMRC to quantify the impacts of this measure more precisely.

There were 13 responses to this question.

Some respondents agreed that the costs and impacts identified by HMRC in the consultation were accurate whilst others stated that a significant amount of the work involved would use existing tools and systems, and therefore little additional expenditure would be required. Other respondents highlighted that certain blockchain-based service providers, which have not been subject to or complied with anti-money laundering (AML) rules or regulatory requirements in the past, have typically incurred much lower costs when compared to traditional finance. Therefore, their costs will increase significantly as a result of compliance with the CARF.

Several respondents suggested that costs will be significant, and many outlined a range of one-off and ongoing costs, although only two provided specific estimates of the cost or time involved. They commented that the costs are likely to be incurred upon:

• additional staff to implement and monitor the changes
• training staff and specialist advice
• IT and infrastructure, such as servers to store the additional data
• annual costs for report preparation and filing (which some respondents suggested would be higher for those RCASPs unfamiliar with reporting)
• development and management of systems to track transactional data
• improvement and/or implementation of due diligence and self-certification processes
• communication of the changes to staff
• communication of the changes, plus guidance and support, for customers

Some respondents stated that additional costs were very difficult to predict at this stage as there are policy decisions still to be made which will have an impact on costs, such as whether to extend the CARF by including the UK as a reportable jurisdiction at the same time.

Government response

The government is conscious of the additional costs that RCASPs will incur to comply with the new rules. By giving sufficient lead-in time for businesses to prepare, the government believes these costs will be manageable and will consider the impacts further as it consults stakeholders.

The government is committed to ensuring that any additional burdens are proportionate. Wherever possible, the Government will align closely with the published OECD CARF and commentary to ensure consistency of reporting requirements across jurisdictions and minimise burdens.

Amendments to the Common Reporting Standard

Amendments to the CRS

Question 10: Do you agree with the government’s approach to Qualified Non-Profit Entities?

There were 16 responses to this question.

All respondents were broadly in agreement with the Government’s approach that Qualified Non-Profit Entities should be designated as Non-Reporting Financial Institutions, provided they can be verified as such. They noted that as some charities may struggle to complete and provide the documentation for CRS reporting, this is a proportionate and sensible approach. Respondents suggested that this would reduce the administrative burden faced by non-profit entities, acting as an incentive for the growth of this sector.

One respondent asked HMRC to provide clarification that no additional work will be needed to confirm the change in classification. The same respondent also asked HMRC for clarification whether this will bring a charity’s CRS classification in line with its FATCA classification.

Government response

Respondents were broadly in agreement with the government’s approach to Qualified Non-Profit Entities. Therefore, the Government will designate Qualified Non-Profit Entities as Non-Reporting Financial Institutions. HMRC will continue to work with stakeholders to ensure any additional queries are clarified in guidance.

Interaction with CARF

Question 11: Do you agree with the proposal to have an election to ignore the switch-off and report under both regimes?

There were 15 responses to this question.

Most respondents agreed it would be useful to have the option to elect to report under the CARF and the CRS where an asset is in scope for both, rather than there being an automatic switch-off of the report under the CRS. They suggested it would allow the reporting entities to decide how best to meet their obligations under both regimes. They focused on the flexibility, consistency, and transparency that this would afford FIs. Some respondents highlighted the need for clear published guidelines and procedures to support FIs who choose this option, as well as the need for the overlap between the two reporting regimes to be clearly understood by tax authorities.

However, some respondents disagreed with the proposal as they were concerned it would add complexity to the proposed system, which would make the data harder to collate and compare, leading to a potentially heightened risk of non-compliance.

Several respondents were concerned that the switch-off is insufficient to prevent duplicate reporting under CRS and CARF, which in their view is likely to become more common than originally envisaged by the OECD.

One respondent also suggested the UK work with OECD members to change the rule on duplicate reporting to allow an FI to opt to report under the CRS rather than the CARF for CRS-relevant cryptoassets.

Government response

The government notes that most respondents agreed with the proposal to have an election to ignore the switch-off and report under both regimes. This proposal will be included in the updates to the CRS. HMRC will work with other tax jurisdictions to minimise the risk of data being misinterpreted.

The government has no plans to allow an FI to opt out of the CARF and report CRS-relevant cryptoassets under the CRS, rather than the CARF, as this is not the internationally agreed approach.

Question 12: Do you consider the scope of, and definitions contained within, the rules to be sufficiently clear? Are there any areas where additional guidance would be helpful?

There were 7 responses to this question.

Respondents considered that the scope and definitions are generally clear at this stage, but that as the implementation progresses additional clarity and guidance may be required. They highlighted that in the current CRS regime, along with MRDP, there are still challenges associated with the interpretation of guidance and rules, and as such, clear and precise definitions are needed.

Respondents suggested several areas where additional guidance would be beneficial. One respondent requested the inclusion of practical examples in the guidance for: Central Bank Digital Currencies, Derivative Financial Instruments referencing cryptoassets, capital contribution accounts and the interaction between CRS and CARF. Some respondents focused on the definitions/guidance for Specified Electronic Money Products (SEMPs) and requested further guidance on these products, including on the de minimis threshold. Respondents stated the importance of providing additional guidance to make sure compliance and reporting by FIs is more effective.

One respondent suggested that some of the questions raised should go to the OECD to be included the guidance and commentary.

Government response

The government welcomes the suggestions for where additional guidance is necessary and recognises that further explanations are needed. HMRC will work with industry, and the OECD where appropriate, to produce comprehensive and effective guidance.

Potential additional changes to regulations

Question 13: Do you agree with the government’s proposal to introduce a mandatory registration requirement?

There were 19 responses to this question.

Many respondents agreed with this proposal, with some noting that mandatory registration makes sense to gain a full understanding of the whole reporting population.

Several of these respondents agreed with the proposal in principle, subject to some caveats. These included suggestions such as making sure it is only a one-off registration, with no further or periodic registration requirements, and making sure that the requirements are clear and detailed so that FIs had full understanding of their responsibilities.

Some respondents failed to see the benefit of this proposal to HMRC and questioned whether its introduction would provide HMRC with the assurance that CRS due diligence rules were being correctly applied, particularly if nil returns are not required. One respondent suggested that HMRC could obtain most of the information requested in mandatory registration via other reporting regimes. One respondent proposed limiting the scope of mandatory registration requirements to reporting FIs that maintain ‘financial accounts’ as per the CRS definition.

Several respondents were concerned that a mandatory registration requirement would impose an unnecessary administrative burden upon FIs, particularly smaller FIs. Respondents offered a number of suggestions to try to mitigate the additional administrative burden, such as only requiring mandatory registration from FIs with a reporting obligation/reportable accounts, having a single registration at group level, phased implementation, delaying implementation entirely and not mandating a nil reporting requirement.

Government response

The government considers that mandatory registration is necessary to enable HMRC to gain assurance that CRS rules are being complied with, given that many FIs (as defined for CRS purposes) are unregulated. The government notes the comments made by respondents and will work to minimise the administrative burden. This will be a one-off rather than an annual requirement and will not involve nil reporting.

Reform of penalty provisions

Question 14: Do you agree that, in principle, penalties relating to CRS obligations should be consistent with those set out above?

There were 17 responses to this question.

Several respondents agreed with the proposed penalty categories and structures set out in the consultation, citing the benefits of simplification, certainty, and consistency across regimes. They highlighted the need for clear guidance and support from HMRC to create a penalties regime that encourages compliance rather than being onerous and punitive.

Some respondents agreed the need for consistency but had concerns about how penalties would be applied in practice. For example, regarding the penalty for ‘failing to obtain valid self-certifications where required’, some respondents stated that as there is no incentive for account holders to return them, it can be difficult for FIs to obtain them in certain circumstances and as such, a penalty may not correct the non-compliance as the FI is already taking action.

Respondents also requested clarity on the penalty for ‘failure to notify individual reportable persons that the FI has submitted information about them to HMRC and may be transferred to the government of another territory’. Some respondents currently advise account holders at the point of self-certification that their data may be reported to HMRC and exchanged with other jurisdictions, but don’t then notify when any data is reported and exchanged. They requested clarification about whether they will need to notify account holders on a yearly basis.

Some respondents disagreed with the proposed penalty categories and structures. They believe that the MRDP penalty regime would lead to disproportionate penalty amounts when applied to CRS and consider that the range of categories and structures suggested would lead to a penalty regime that was too complex and contrary to the intentions of the Tax Administration Framework Review. Respondents also expressed concern over the proposal for daily penalties for some errors, considering that they could be penalised for aspects they believe are out of the FI’s control.

One respondent highlighted the key differences between users impacted by MRDP and accounts brought into scope by CRS, suggesting that other regimes such as MDRP and CARF offer more opportunities for individual users to evade tax than those accounts in scope for CRS. They also suggested that the newer technologies associated with these more recent AEOI regimes mean they are more able to accommodate additional requirements than CRS. As a result, they feel that applying the same penalty regime to all AEOI products is unfair.

Government response

The government is satisfied that the proposed penalties structure, aligned with the penalty structure in the MRDP, is appropriate and proportionate and will provide clarity and guidance in due course.

Question 15: Do you think that the penalty amounts in the Model Rules for Digital Platforms are appropriate for the CRS?

There were 15 responses to this question.

One third of respondents agreed that the MRDP penalty amounts were appropriate for CRS, recognising the importance of penalties being proportionate. They recognised that to have penalties that are consistent with other AEOI regimes would offer clarity and predictability, helping entities to meet their compliance obligations. Some respondents also suggested that it would be useful to have consistency of penalty amounts between jurisdictions, with expectations set by the OECD.

Some respondents generally agreed with the penalty amounts in the MRDP but advocated a cap on the maximum penalty that could be imposed. They consider that the proposed ‘per account’ penalty, when applied to the large number of accounts in scope for CRS, could lead to disproportionately large penalties, particularly if they relate to systems errors or inadvertent errors in processing.

Some respondents were concerned about how and when penalties would be applied for due diligence failures, particularly in relation to pre-existing accounts where information may not be readily available and/or difficult to obtain.

One respondent suggested greater flexibility in the penalty regime was needed, with mitigation and scaling to reflect the size and scale of the FI, alongside mitigation based on the severity of the non-compliance. They also suggested a phased introduction of penalties for those FIs who are newly in scope.

Government response

The government considers that penalty amounts should be reasonable and proportionate, but also high enough to act as an effective deterrent. The government has considered the comments made by respondents and believes that the penalty amounts detailed in the MRDP are appropriate for the updates to the CRS. The government also recognises the benefits of bringing CRS penalties in line with other AEOI regimes.

Where the penalty regime may deviate from the MRDP, such as the penalty for failure to obtain a valid self-certification, HMRC will provide further details. The full outline of the proposed penalties and processes will be detailed in updated guidance.

Question 16: What additional strong measures would be appropriate to ensure valid self-certifications are always collected where required?

There were 14 responses to this question.

Some respondents highlighted specific circumstances where the timely collection of valid self-certifications for CRS can be problematic, explaining that reporting FIs’ processes for requesting and obtaining self-certifications are clear and followed up accordingly. In circumstances where a valid self-certification cannot be obtained, they feel that stronger measures, such as legislation to permit freezing or blocking accounts, could be put in place to ensure the collection of a valid self-certification. Other respondents cautioned against such strong measures for the CRS, stating that delays caused by halting account operations may have an impact on other UK regulatory requirements.

Some respondents advocated charging a percentage penalty based on revenue and/or behaviours rather than a flat rate, feeling that this approach would act as a driver for FIs to pursue a valid self-certification. Other respondents instead emphasised the need to take specific examples into account and refrain from implementing a one-size-fits all approach to the strong measures.

Respondents also emphasised the role that HMRC and the OECD could play in supporting FIs to obtain, and customers to complete, valid self-certification documentation. Suggestions ranged from offering differing levels of website examples and support, to the introduction of a Government Verification Service (GVS), to the sharing of compliance intelligence and data between HMRC and industry partners.

Government response

The OECD commentary to the CRS explains that strong measures are required to ensure that Financial Institutions receive valid self-certifications. Please see the government response to question 8 which considers this from a CARF perspective in respect of failures to obtain a valid self-certification. A similar approach will be adopted for the CRS.

The government welcomes the range of responses to this question. HMRC will carefully consider all responses and will hold further discussions with stakeholders to determine appropriate measures.

Exchequer impact assessment

Question 17: Do respondents have any comments on the assessment of impacts of these proposals?

There were 9 responses to this question.

Respondents acknowledged the comprehensive impact assessment detailed in the HMRC consultation and largely agreed with the specific impacts noted.

Several respondents said they expected the cost of complying with these proposals to be significant. It was helpful where respondents specified one-off costs, such as the costs of:

• obtaining information such as TINs for due diligence of existing customers
• assessing whether the FI and the relevant product is now in scope
• gathering and documenting requirements then assessing the impact of the required change
• contacting clients
• implementing changes to external literature and internal documentation
• internal training and system testing
• conducting a post-implementation review

Respondents also expressed concern that any additional costs would disproportionally impact smaller entities more than larger ones.

Several respondents highlighted the increased impact on customers as a result of implementing these proposals and the ensuing compliance activity, for example the impact of the due diligence procedures on the processing time for account opening or transactions. They also highlighted the change to the customer experience that may come from the FI or RCASP implementing additional, potentially complex, requirements.

Respondents also commented on the additional impacts for individuals because of the possibility of their data being exchanged with other tax jurisdictions and the possibility of compliance activity, or increased self-assessment, as a direct result of this. One respondent noted the importance of undertaking a Data Protection Impact Assessment (DPIA).

Government response

The government notes the acknowledgement of the comprehensive impact assessment and the wide agreement with specific impacts noted. The government is conscious of additional costs that FIs will incur to comply with the changes to the rules. By giving sufficient lead-in time for businesses to prepare, the government believes these costs will be manageable and will consider the impacts further as it consults stakeholders. The government will consider updating the existing DPIA with any additional impacts.

Seeking views on domestic reporting

Impact of extending to domestic reporting

Question 18: What are your views on extending CARF by including the UK as a reportable jurisdiction? What impacts would this have on RCASPs in scope? Are there other issues, regulatory or legal, that will need further discussion?

There were 16 responses to this question.

The majority of the respondents supported extending the CARF by including the UK as a reportable jurisdiction, stating that it would encourage compliance whilst having a minimal impact on entities as the reporting systems would be the same as the international CARF. However, the support of several of these respondents was contingent on no further, separate domestic cryptoasset reporting regimes being implemented at a later date, and that the domestic regime does not deviate from the international exchange standards for CARF.

Some respondents did not agree with the proposal to extend the CARF by including the UK as a reportable jurisdiction. They were concerned with the difficulty of obtaining a tax identification number prior to effectuating transactions, and the additional administrative burden that would be caused by the outreach needed to obtain this information. One respondent also stated that domestic reporting went against the aim to develop the cryptoasset industry in the UK.

A few respondents noted the difficulty in collecting and providing accurate data on a calendar year basis when the UK’s tax year ends on 5 April.

One respondent noted that HMRC already has the powers to obtain cryptoasset information from UK cryptoasset providers. They recommended that a domestic regime should only be brought in if HMRC can demonstrate widespread non-compliance.

A few respondents outlined concerns about where tokenised funds are held, or where cryptoassets are held in low-risk products such as Individual Savings Accounts (ISAs) or Self-Invested Personal Pensions (SIPPs). These are excluded under the CRS regime but are not excluded from the CARF. These respondents felt that this means that reporting is not dependent on the product, but on the platform that is used to acquire the product, which is not equitable in their view. They requested that these products are excluded from the CARF.

Government response

The government has decided to introduce domestic reporting as part of the implementation of the CARF and will legislate for this in due course. It considers that the additional burden is minimal as the domestic information can be collected and reported through the same systems that will have to be built for the CARF as a whole.

The government notes that some of the support for extending the CARF to include UK reporting is contingent on not introducing any further domestic reporting measures or requiring additional reporting beyond the international standard. The government has no current plans to do this, but it cannot rule out that such further measures will be enacted in the future.

Question 19: What are your views on extending CRS by including the UK as a reportable jurisdiction? What impacts would this have on reporting entities in scope? Are there other issues, regulatory or legal, that will need further discussion?

There were 22 responses to this question.

Around one third of respondents were in favour of extending CRS to include the UK as a reportable jurisdiction, recognising that it would give parity of information to HMRC for both domestic and offshore matters for UK taxpayers as well as helping to streamline reporting requirements. Respondents highlighted that for some Financial Institutions who already report under CRS, it would have minimal additional impact to include domestic accounts.

Some respondents raised concerns about how the data would be used, and how useful the data would be. They were also concerned that extending the CRS to domestic accounts would result in duplication of information that is already provided to HMRC under other reporting regimes (such as BBSI or other interest returns) and place an onerous burden on FIs to report information that HMRC can already access. The insurance industry voiced specific concerns about the usefulness of the data they would have to provide under CRS and that they already have significant and relevant reporting requirements.

Several respondents raised the issue that CRS reports are prepared on a calendar year basis, and only provide a snapshot of the account balance on 31 December, whilst the basis of assessment for most of the relevant income is the fiscal year to 5 April. This makes it difficult to reconcile figures reported under CRS with figures reported on tax returns and some respondents expressed concern that this could lead to non-productive HMRC enquiries.

Respondents were also concerned about the administrative burdens and associated costs that could be placed on FIs by bringing domestic accounts into scope for CRS. They commented that some FIs will have very high numbers of UK resident account holders, and reporting on all these accounts will come with a significant time and resource impact, and with significant costs. Respondents also considered the discrepancy between the reporting date of 31 December and the tax year end of 5 April as an issue that will increase costs as FIs seek to marry up the two data sets.

Some respondents suggested that one way to mitigate the burdens associated with extending the scope of CRS would be to introduce a de-minimis limit in line with other regimes/jurisdictions in order to exclude large numbers of low-balance accounts from the requirement to report.

Respondents questioned whether all FIs currently in scope for CRS should be included for domestic CRS, given their other reporting obligations.

Respondents also mentioned the ongoing Tax Administration Framework Review work within HMRC and suggested any proposals around CRS were aligned with that work.

Government response

The government is grateful for the responses received. The issues raised need further detailed consideration, and we will continue to engage with interested stakeholders to fully understand the issues and options.

Question 20: If the UK were to decide to introduce domestic CARF and CRS reporting, what are your views on implementing to the same timeline as the international CARF/CRS2 package (information collected in 2026, exchange in 2027)?

There were 25 responses to this question.

In the event that domestic CARF and CRS were to be implemented, many respondents were in favour of domestic CARF and CRS reporting to the same timeline as the international CARF/CRS2, viewing it as reasonable and achievable. They saw the introduction of domestic reporting alongside the international as preferable, more sensible and, in many ways, more efficient than staggering the introductions. Respondents highlighted the development and use of the same or similar IT systems for all new reporting and said that if it had to be ready for the international regimes, then it could be equally ready for domestic reporting.

A small number of respondents disagreed with the implementation along these timelines, with a particular focus on the barriers to the introduction of domestic CRS in the suggested timescale. They referred to the question of whether domestic CRS would achieve the stated policy aim as a reason for disagreement, as well as the timeline of first reporting in 2027.

Many respondents agreed in principle to the extension of the CARF by including the UK as a reportable jurisdiction, with the majority supporting the introduction of domestic CARF alongside the international CARF. Fewer respondents agreed with the extension of the CRS by including the UK as a reportable jurisdiction. Many respondents also disagreed with the proposed timeline for CRS, stating that first reporting in 2027 would not give FIs sufficient time to develop the systems necessary to implement the reporting regimes. Respondents noted that for FIs who would be impacted by the changes to CRS and the introduction of domestic CRS, there are already a significant number of changes taking place and urged HMRC to consider extending the timescale for implementation.

Some respondents called for a more comprehensive consultation on the issue of domestic CARF/CRS so that a wider range of users and businesses are aware of the different proposals and their impacts.

Government response

The government intends to align the introduction of domestic reporting for the CARF with the timeline for the international CARF with data collection from 1 January 2026 and first reporting on 31 May 2027.

The government considers that domestic reporting for the CARF will have minimal additional impact for most RCASPs. The due diligence procedures, reporting requirements, and information submission portal will be the same as for the CARF itself, so there should be no changes necessary for staff and IT systems to collect and provide this information to HMRC to the same timescale as the international CARF.

For domestic reporting for CRS, as stated in the response to question 19, HMRC and HMT will continue to engage with interested stakeholders to fully understand the issues and options before any decision is taken at a later point to require domestic reporting.

Next steps

The government would like to thank stakeholders for their engagement with the consultation.

The government has published the draft regulations implementing the new reporting rules alongside this summary of responses document for an 10 week ‘technical’ consultation. The government welcomes comments on the draft regulations to ensure that they work as intended. Please respond to the Exchange of Information Team by email to eoi.policy@hmrc.gov.uk.

HMRC will continue to work with stakeholders to understand the issues raised by this consultation in more detail. This will feed into the development of the systems and processes needed, so that as many views as possible are taken into account in the design of the reporting systems.

HMRC will also continue to engage with stakeholders regarding some of the details of the new reporting rules. This will help HMRC to draft guidance and provide clarity on practical implementation details. Final guidance is expected to be published before the regulations come into force in the International Exchange of Information Manual, which is available on gov.uk.

Annexe A: List of stakeholders consulted

• Andersen LLP
• Association of British Insurers
• Association of Financial Mutuals
• Association of Investment Companies
• Association of National Numbering Agencies
• a16z crypto
• Azets
• British Private Equity and Venture Capital Association
• Building Societies Association
• Charity Law Commission Standing Committee on Taxation
• Chartered Institute of Taxation (CIOT)
• Coinbase
• Computershare Investor Services PLC
• Crypto Council for Innovation
• CryptoUK
• Digital Currencies Governance Group
• Digital Token Identifier Foundation
• Dune Consultants
• Electronic Money Association
• Global Digital Finance
• Grant Thornton LLP
• ICAEW
• The Investment Association
• The Investment and Savings Alliance
• KPMG
• Kraken
• Kyax
• Legal and General Group
• Personal Investment Management & Financial Advice Association
• Stablecoin Standard
• Taxbit
• UK Cryptoasset Business Council
• UK Finance