Accountant and crypto: substantiating a client’s assets lawfully
Date: | Week 27 | Reading time: 7 minutes | Updated: Author: Tyler Dijst
In short
Accountant and crypto: when an accountant sees crypto on the balance sheet of an owner-managed company, they want to know where it came from before it goes into the accounts. Often the origin can be substantiated perfectly well; sometimes part of the route is missing. Only once someone works through the transactions do you know where you stand.
Paucitas is an independent expert firm in the Netherlands that establishes the origin and legitimacy of crypto assets, in hundreds of cases a year. Paucitas provides the substantiation; the tax treatment stays with the accountant or tax adviser.
Get in touch with Paucitas or ring +31 20 244 5774. In a free intake you will hear what substantiation is achievable in your situation.
In a nutshell
An accountant will not take on a crypto balance they cannot trace. Paucitas maps the route from first purchase to balance-sheet figure, so the accountant can base their own judgement on facts.
An owner-director has held bitcoin and ether for years, partly through the company. The balance is substantial, the transactions run across several wallets and exchanges, and there is no complete overview anywhere. The accountant wants to deal with it properly and asks the question you may have expected: where did this come from?
That is not distrust. An accountant has their own duty of care. This blog explains what they need and how Paucitas helps.
Accountant and crypto: which 4 things does the accountant want to see?
A screenshot of an exchange balance is not enough. An accountant wants a picture they can trace:
- Which wallets and accounts belong to the client or the company.
- Which balances were held at the balance sheet date.
- How the assets arose: purchases, sales, mining, staking or business receipts.
- The valuation at the right moment.
If any of these is missing, a question mark remains in the accounts. Does this sound like a client of yours, or like you? Let Paucitas take a look with you. You can ring at any time, 24/7, on +31 20 244 5774.
When is the origin of crypto assets properly substantiated?
When it is clear where the money came from and that source can be explained. Think of purchases with demonstrably own funds, or proceeds from earlier sales. Paucitas does not give a legal or tax opinion. We set out the money flow as a matter of fact. What a substantiation does and does not cover is explained under asset verification.
Sometimes everything fits neatly. Sometimes an inflow appears that cannot yet be placed. We say so, so that the accountant and the client know exactly where a piece is missing. A substantiation that is honest about what remains open is worth more to an accountant than an overview that looks too good to be true.
An example from practice
An owner-director bought bitcoin privately in 2017 and later put part of it into his limited company. His accountant could not place the contribution, because the old exchange no longer existed.
Paucitas reconstructed the purchase from the bank statements and followed the bitcoin across three wallets to the company wallet. Apart from one small inflow, the route was complete. The accountant could book the item and knew exactly which part still needed an explanation.
Paucitas takes privacy very seriously and never shares clients' personal details. This is a composite example: names, amounts and details have been changed. The situation is one we see in practice.
Personal or business: why does that distinction matter so much?
With an owner-director, personal and business assets easily get mixed up. A wallet has no registered owner, so it is often unclear which part belongs to whom. For the accounts, that has to be settled.
Paucitas maps that split based on the source of funds, the moment of contribution or withdrawal and the transactions themselves. The tax consequences, for example for corporation tax or a director's loan account, belong with the tax adviser. We keep that line very clear.
What UK rules expect of accountants
Under the Money Laundering Regulations 2017, accountants and tax advisers carry out their own customer due diligence and, where needed, ask about the source of funds. HMRC also expects cryptoassets to be reported correctly, and sets out its approach in the Cryptoassets Manual. A traceable substantiation helps with both.
How is a substantiation for the accountant put together?
Paucitas does all tracing itself, without tracing tools. In a free intake we establish which wallets and accounts are involved and which question the accountant needs answered. We then follow the transactions on the blockchain and link them to exchange statements and bank records. We also go through documents, emails and other records, so that a complete picture emerges, with a timeline and where each part of the assets came from, step by step.
You receive a report that anyone can follow and understand step by step. An accountant or tax adviser can follow the reasoning without having to dig into the blockchain themselves. More on the overall approach is in proving the origin of assets. For crypto on a company balance sheet there is a separate blog: crypto on the balance sheet.
Who helps accountants substantiate crypto?
Paucitas. We work for accountants, tax advisers and business owners who want certainty about crypto assets. Paucitas substantiates and verifies, but does not give tax or legal advice. That independence is precisely what makes the substantiation strong. More on our role is in accountants and advisers.
- Costs: every investigation is tailored. You receive a bespoke quote in advance, which we go through together, so there are no surprises.
- Turnaround: from the same day to around two weeks.
- Contact: you can ring at any time, 24/7. We answer the form within 1 to 3 hours, and email within 24 hours, usually the same day.
Do you have a client with crypto in the company, or are you that director? Get in touch for a no-obligation introduction, or ring +31 20 244 5774. Is the bank asking for evidence too? Then read proving the origin of crypto to your bank.
Sources: legislation.gov.uk, Money Laundering Regulations 2017; GOV.UK, tax on cryptoassets; HMRC Cryptoassets Manual.
Do you have questions about this blog?
Feel free to get in touch with Paucitas. Paucitas can be reached by phone 24/7, including evenings and weekends. Through the contact form we usually reply within 1 to 3 hours, and we answer e-mail within 24 hours.
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Frequently asked questions about accountants and crypto
What does an accountant need to substantiate a client's crypto?
Paucitas names four elements: an overview of the wallets and accounts, the balances at the balance sheet date, the origin of the assets and the valuation. A single exchange balance is not enough. Paucitas provides this as a report anyone can follow.
Does Paucitas give tax advice on crypto in the accounts?
Paucitas does not give tax advice, but substantiates and verifies the facts. The tax treatment is for the accountant or tax adviser, based on our report.
How do you establish which crypto is personal and which is business?
Paucitas establishes this wallet by wallet, based on the source of funds, the transactions and the moment of contribution or withdrawal. A wallet has no registered owner, so this takes investigation.
What if part of the origin cannot be substantiated?
Paucitas then states this honestly in the report. You know exactly which part still needs an explanation. Often it is a smaller part than feared.
How long does a substantiation for the accounts take?
Paucitas needs from the same day to around two weeks, depending on the number of wallets and years involved. You receive a bespoke quote in advance, which we go through together.
From Amsterdam, for the whole of the UK
Everything can be done fully online. Prefer to meet in person? You are very welcome at our office in Amsterdam, by appointment.
Paucitas is an independent expert firm based in the Netherlands that, for clients across the UK, investigates investment fraud and crypto fraud, establishes the origin and legitimacy of crypto assets and prepares expert reports for legal proceedings and compliance.
Your own situation
If you are reading this, you probably have a question about your own situation. That is exactly what Paucitas does.
The first step is contact by phone. You can book that call by phone or through the contact form, so you do not have to wait. In the call we look together at what can factually be established in your case and what Paucitas can examine for you.