The UK taxation authority, Her Majesty's Revenue and Customs (HMRC), has become the first UK law enforcement agency to seize NFTs, and has said that this is a "warning to anyone who thinks they can use crypto assets to hide money from HMRC".

HMRC seized three digital artwork NFTs due to a suspected VAT fraud amounting to £1.4 million, and three suspects have been arrested. The suspects used a mix of stolen identities and unregistered phones in an attempt to claim back more VAT than they were owed; overall, more than 250 fake companies were involved.

Officials have seized £5,000 of crypto-assets, but the NFTs involved have not yet been valued. HMRC has secured a court order to prevent the NFTs being sold on.

Total sales of NFTs were over $40 billion in 2021, but the growing NFT market has been dogged by claims of scams and fraud.

HMRC stated that it is constantly adapting technology to be live to the evolving ways in which criminals try to conceal assets.

This case follows the action last week by the United States Department of Justice to seize $3.6 billion of digital assets linked to the 2016 hack of crypto-exchange Bitfinex and arrest of tech entrepreneur Ilya Lichtenstein and his rapper wife Heather Morgan, as discussed in this recent post.

The UK tax authority has released guidance on how individuals should keep records of crypto transactions and report and pay any tax due on cryptoassets, and earlier this month, published new guidance on the taxation of cryptocurrency transactions involved in decentralised finance.

Nick Sharp, HMRC’s deputy director of economic crime, said: “Our first seizure of a non-fungible token serves as a warning to anyone who thinks they can use cryptoassets to hide money from HMRC. We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets.”