The UK tax authority, HM Revenue & Customs (HMRC), is seeking expanded powers to obtain information from cryptoasset businesses to strengthen tax compliance and access to digital-asset records.
Under the proposed reforms, HMRC would be able to extend its Financial Institution Notice powers to cryptoasset service providers. The changes would also update rules governing access to computer records and software.
The proposed measures aim to ensure HMRC can obtain the information it needs to collect the correct amount of tax. The tax authority has said that any changes would include proportionate safeguards to protect taxpayers and third parties while allowing it to carry out compliance work.
The definition of a cryptoasset service provider could also cover businesses that do not hold customers' funds. According to British crypto tax software company Recap, the definition could potentially include tax software providers, wallet software, block explorers, data providers and hardware wallet manufacturers.
The proposed reforms would also remove the statutory requirement to report annually to Parliament on the use of Financial Institution Notices.
The proposals have raised concerns over the amount of personal and financial information that could be linked to blockchain activity.
Recap has warned that once names, addresses and tax identification numbers are linked to Bitcoin addresses, they could remain associated with transactions recorded on public blockchains for a long period.
Unlike traditional bank records, Bitcoin transactions are publicly visible on the blockchain. Linking an individual's identity to a wallet address could therefore provide access to a wider history of their on-chain activity.
Concerns have also been raised about the potential risks of data breaches, extortion and threats to personal safety if sensitive information is concentrated within tax systems.
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HMRC's consultation on the proposed changes closed on September 7. The tax authority said ministers have not yet decided on the reforms.
The proposals are part of the UK's wider effort to strengthen oversight of cryptoassets and ensure tax authorities have access to the information needed to identify and address potential non-compliance.