Getting a mortgage if you are employed in a regular job can be a drama, but not as problematic as when you are trying to get a self-employed mortgage.
Different lenders will take different approaches to establishing your income. Some will work for the most recent year’s income, others will look much further back. The key to getting a mortgage is in preparation, so if you prepare for all eventualities, you should be covered.
This article looks at ways you can prove your income as a self-employed person:
How to prove your income as a self-employed person
You are definitely going to require your Tax Calculation and Tax year Overview from your most recent self-assessment tax return, as it shows how much personal income you declared for the previous tax year (April to April). It relates to YOUR personal self-assessment tax return, not your limited company’s tax return.
You can get your Tax Calculation and Tax year Overview either from your accountant (if they filed for you) or by logging into HMRC and printing it out, or if you filed by paper, you will have to contact the HMRC and request one.
If you applying directly to a lender, be sure to inquire what the lender’s policy is on self-employed mortgage requirements BEFORE applying to that lender, because it could have an impact on the amount of money you can borrow.
How company directors with retained profits can prove their income
If you have chosen to keep profits in the company, expect to present company accounts to the lender, as your personal income won’t accurately reflect what you took for a salary (your income) versus what you are owed. This can hugely increase the amount you can borrow whilst reduce your personal tax liability.
How sole traders who have brought losses forward can prove their income
For sole traders who have brought losses forward, expect to present company accounts to the lender. Your SA302 will show your final taxable income, not the year’s profits, and if you used previous year’s losses to offset what tax you owe, then your final taxable income will appear considerably lower than what it would otherwise be.
Proving income as a director of a limited company
Anticipate being asked, by the lenders, to show previous years company accounts as evidence of your income. These will be accounts that you have already filed with Companies House, so print out copies in advance.
Having an accountant vouch for your income as a self-employed person
Even having prepared all of the above, sometimes lenders will require an accountant to vouch for your income. If you have an accountant, anticipate this, and ask them to prepare, as a minimum, to support your paperwork, evidence of:
If there is a discrepancy between the accountant’s figures and the ones you have provided, you will run into trouble. So, before you apply for anything, ensure both your figures match up.
In summary, prepare fully and expect to have to provide a full breakdown of your income.