27 August 2026 – written by Steffen Kemmerzehl – Friendly Assist Accountancy – Blog
Tax often looks relatively simple until you start asking what actually happened behind the numbers. You move abroad, so you assume you are no longer UK tax resident. You have already paid tax overseas, so surely there cannot be UK tax to pay. Money arrives in your bank account, so it must be income. You take money from your company, so you call it a dividend.
Sometimes those assumptions are completely correct. However, sometimes one small detail changes the answer, and that is something we regularly see at Friendly Assist Accountancy. The difficult part of accounting and tax is often not calculating the numbers but understanding the circumstances behind them.
Here are seven situations where the obvious answer may not be the right one.
1. Moving Abroad Doesn’t Automatically End UK Tax Residence
If you pack your belongings, move to another country and start building a life there, it is natural to assume that your UK tax residence ends when you leave. Unfortunately, the tax rules don’t work quite as simply as that.
The UK uses the Statutory Residence Test to determine whether someone is UK resident for tax purposes. The number of days you spend in the UK is important, but depending on your circumstances your work, home, family connections and previous residence can also matter. There are also split-year rules which can sometimes apply when someone leaves or arrives in the UK part-way through a tax year.
A recent tax case shows how much difference a surprisingly small number of days can make. In A Taxpayer v HMRC, the dispute centred on whether several days spent in the UK could be disregarded because of exceptional family circumstances. Those days affected the taxpayer’s residence position, which was particularly important because she had received a substantial dividend during the year.
Most people will never have circumstances as unusual as that case, but the principle is useful. Moving home and changing your tax residence are not necessarily the same event. This can be particularly important if you move overseas while keeping a UK company, property, employment or other connections here.
2. Paying Tax Abroad Doesn’t Necessarily Mean There Is No UK Tax
Another understandable assumption is that once tax has been deducted overseas, the income has already been dealt with. In many situations that may ultimately be the case, but paying foreign tax does not automatically mean that the UK has no interest in the income.
Your UK residence, the country involved and the type of income can all make a difference. A Double Taxation Agreement may determine which country has taxing rights, while Foreign Tax Credit Relief can sometimes prevent the same income effectively being taxed twice.
This can arise with overseas employment, pensions, rental properties and investments. Two people can receive very similar types of income but have completely different tax positions because they live in different countries or because different tax treaties apply.
So when somebody tells us, “I’ve already paid tax abroad”, that is very important information. It just isn’t necessarily the end of the calculation. We still need to understand where the person was resident, where the income came from and what rules apply to that particular situation.
3. Money in Your Bank Account Isn’t Necessarily Income
Imagine £5,000 appears in your bank account. Looking only at the bank statement, it would be very easy to assume that the business has earned £5,000, but the statement itself doesn’t actually tell us why the money arrived.
It might be a payment from a customer, but it could equally be a transfer between your own accounts, repayment of a loan, a refund, money you introduced into the business or reimbursement of an expense. The amount might look exactly the same on a bank statement while the accounting and tax treatment could be completely different.
A tax case involving a taxpayer named Mr Patel provides a much larger example of this problem. HMRC identified around £302,000 of bank receipts despite the taxpayer’s return showing no employment or self-employment income. The taxpayer explained that the deposits represented several different things, including transfers, loans, refunds and expense repayments. HMRC eventually accepted some explanations while other amounts remained disputed.
Most small businesses will never deal with anything remotely on that scale, but the underlying principle is exactly the same. A bank statement tells us how much money moved; it doesn’t necessarily tell us why it moved. This is also one of the reasons your accountant may ask for more information when preparing your accounts.
4. Taking Money From Your Company Doesn’t Automatically Make It a Dividend
Suppose you transfer £2,000 from your limited company account into your personal bank account. From the bank statements alone, all we can really see is that £2,000 has moved from one account to another.
It could be salary or a dividend, but it could also be repayment of money you previously lent the company, reimbursement of an expense or a director’s loan. These are not simply different names for the same transaction. They can have different consequences for Income Tax, National Insurance, PAYE and Corporation Tax.
Dividends also have rules of their own. A company needs sufficient profits available for distribution, and simply transferring money to yourself doesn’t automatically turn that payment into a dividend afterwards.
Director’s loan accounts can become particularly complicated when money has moved backwards and forwards over several years without the transactions being clearly identified. HMRC disputes have reached the tax tribunals over questions such as whether a director’s loan was actually written off and, if so, when that happened.
In practice, the easiest solution is usually much less dramatic: record what payments represent when they happen. Trying to reconstruct several years of withdrawals later can turn relatively straightforward company accounts into a much bigger exercise.
5. Online Sales Reported to HMRC Aren’t Automatically Taxable Profit
Online platforms can now be required to collect information about sellers and report certain information to HMRC. This has caused quite a bit of confusion, particularly around headlines suggesting that selling 30 items online suddenly creates a tax bill.
That isn’t how the rules work. Platform reporting requirements and the question of whether somebody actually has taxable trading income are two different things.
Imagine two people each receive £4,000 through an online marketplace. One person is clearing out unwanted clothes, furniture and other possessions accumulated over many years. The other regularly buys products specifically because they intend to resell them for a profit. The platform might see similar amounts of money passing through both accounts, but the activities behind those numbers are very different.
The same principle applies to reports generated by investment platforms and other financial providers. These reports can be extremely useful, but they don’t necessarily contain everything required to determine someone’s final tax position.
As HMRC receives more information automatically, keeping your own records becomes more important rather than less important. HMRC may know that £4,000 reached you, but you may still need to explain what that £4,000 actually represented.
6. A Good Summer Doesn’t Necessarily Mean a Good Year
Not every business operates evenly throughout the year. A seaside café, holiday business, tourist attraction or wedding supplier might earn a large proportion of its annual income during a relatively short period, while a Christmas business could experience almost the opposite pattern.
Looking at one successful month therefore doesn’t necessarily tell us very much about the profitability of the business as a whole. Rent, insurance, subscriptions and other expenses may continue throughout the quieter months even when very little income is coming in.
HMRC’s own guidance recognises that businesses can have seasonal and cyclical patterns. Understanding those patterns can be important when looking at accounts, cash flow and financial performance.
This is another reason why good bookkeeping should be more than simply putting transactions into categories. The numbers become much more useful when we understand how the business actually operates, where its busy periods are and what costs continue when things become quieter.
The same principle can apply to businesses operating under unusual arrangements, including businesses connected with tourism, events or heritage locations. Sometimes understanding the business itself has to come before understanding its accounts.
7. An HMRC Calculation Isn’t Necessarily the Final Word
Receiving a letter from HMRC saying that additional tax or a penalty is due can understandably be worrying. It is also easy to assume that because the calculation has come from HMRC, the figure must automatically be correct.
Often it will be, but HMRC can also make decisions based on the information available to them at the time. Depending on the circumstances and the type of decision involved, it may be possible to provide further evidence, request a review, appeal or take a dispute further.
This is where keeping good records can make an enormous difference. Imagine HMRC asks about a £10,000 payment received five years ago. You might genuinely remember that it was somebody repaying money you had previously lent them, but being able to produce the original payment, correspondence about the loan and the later repayment creates a much clearer picture.
The underlying transaction hasn’t changed, but the quality of the evidence has. That is why keeping records matters even when something seems completely obvious at the time. Five years later, what once seemed obvious can be surprisingly difficult to reconstruct.
The Number Is Only Part of the Story
These seven examples cover very different areas of tax, but they all have something in common. £5,000 entering a bank account doesn’t tell us whether it is taxable income, just as £2,000 leaving a company doesn’t tell us whether it is salary, a dividend or repayment of a loan. Moving abroad doesn’t tell us exactly when UK tax residence ends, and paying tax overseas doesn’t automatically settle the UK position.
This is also why accountants sometimes ask questions that initially seem surprisingly specific. Where were you living? Where was the work carried out? What was this payment for? Did you previously lend the company money? Was an item bought for personal use or specifically to resell?
Those questions aren’t there to make accounting more complicated. Sometimes the answer to one relatively simple question completely changes the tax treatment.
At Friendly Assist Accountancy, we help individuals and small businesses with both straightforward accounting and situations where things don’t quite fit the standard answer. If something in your accounts or tax affairs doesn’t seem quite right, please get in touch.
Sometimes understanding what actually happened is the most important part of getting the tax right.
This article provides general information only. Individual tax treatment depends on your circumstances and the rules applying to the relevant tax year.
Steffen Kemmerzehl
I am a qualified AAT accountant in Newcastle upon Tyne.
Please get in touch if you’re interested in arranging an appointment.