Self-employed hub

Policies and Processes relating to self-employed customers

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ONLY FOR USE BY MORTGAGE INTERMEDIARIES

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At a glance

Sole traders

Partnerships

Limited companies

Acceptable accountants

FAQs

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At a glance

We can help with your self-employed customer’s mortgage. Here’s what you need to know:

The business must be based in the UK or Republic of Ireland
We’ve got specific guidance for self-employed applications:

Packaging guide

Affordability calculator

Have a look at these before completing an Agreement in Principle or Full Mortgage Application.

Sole traders

A sole trader is anyone who’s earned more than £1,000 from their own business in a tax year, which runs 6th April to 5th April.

To qualify for one of our mortgages a customer must:

submit their tax returns to HMRC or Irish Revenue Commissioners.
be trading for a minimum of two full years with trading figures from that time, including income from land and property.

To apply:

We’ll need confirmation of the last 2 years Net Profit from self-employment:

Where the latest year’s income has remained the same or increased, we will use an average.
Where the income has decreased, we will use the latest year.

As part of their mortgage application, we’ll need to see your customers:

SA100 (Tax Return) or Full and Finalised account:

Returns that are shown as ‘in progress’ won’t be accepted. We can accept accounts submitted on their accountants’ software.
The year end on the accounts / tax returns must be the most recent and must not be dated more than 18 months before the date of application.

SA302 Tax Calculation.
Tax Year overview.

Personal Bank statements.
Business Bank statements or a memo to confirm no business bank account held.

These documents could vary so check the case packaging requirements on the Full Mortgage Application for what we need for your specific customer.

Information on mortgage applications for foster carers

HMRC treat foster carers as being self-employed, however, the SA302 is only used to determine any tax and NI payable after any qualifying amount has been deducted.

Foster carers should provide Local Authority confirmation of the last two years’ payments received, along with confirmation that the customer is still a registered foster carer.

Partnerships

We can help customers in simple Partnerships and in Limited Liability Partnerships (LLPs).

Simple Partnerships

Simple partnerships are where two or more owners share the business’s profits, and each partner pays tax on their share.

There’s no legal requirement to lodge accounts at Companies House. Instead, simple partnerships can submit self-assessment tax returns much like a sole trader does.  They decide how their share is split, but it’s usually split equally between the partners.

To apply

We’ll need confirmation of the last 2 years Net Profit from Partnership:

Where the latest year’s income has remained the same or increased, we will use an average.
Where the income has decreased, we will use the latest year.

As part of their mortgage application we’ll need to see:

SA100 (Tax Return) or Full and Finalised accounts:

Returns that are shown as ‘in progress’ will not be accepted. We can accept accounts submitted on their accountants’ software.
Note: the year end on the accounts / tax returns must be the most recent and must not be dated more than 18 months before the date of application.

SA302 Tax Calculation.
Tax Year overview.
Personal Bank statements.
Business Bank statements or a memo to confirm no business bank account held.

These documents could vary so check the case packaging requirements on the Full Mortgage Application for what we need for your specific customer.

Salaried and equity partners of LLPs

Salaried & equity partners of LLPs (Limited Liability Partnerships) are usually professionals such as accountants, solicitors, barristers, doctors, and dentists. 

An equity partner owns a portion of a company and is entitled to part of its profit along with their regular salary.

We’ll need confirmation of the last 2 years Net Profit from Partnership:

Where the latest year’s income has remained the same or increased, we will use an average.
Where the income has decreased, we will use the latest year.

Customers must submit:

SA100 (Tax Return) or Full and Finalised accounts:

Returns that are shown as ‘in progress’ will not be accepted. We can accept accounts submitted on their accountants’ software.
Note- The year end on the accounts / tax returns must be the most recent and must not be dated more than 18 months before the date of application.
As an LLP can be made up of multiple partners the LLP company accounts are not always useful in verifying income. In this scenario we can consider the HMRC tax return instead.
If a customer has recently become a partner, we can consider a letter from the Finance Director confirming future profit sharing, which may be considered for verifying income.
This will be down to the underwriter’s discretion.

SA302 Tax Calculation.
Tax Year overview.
Personal Bank statements.
Business Bank statements or a memo to confirm no business bank account held.

These documents could vary so check the case packaging requirements on the Full Mortgage Application for what we need for your specific customer.

Limited companies

In a limited company the business is legally separated from its owners (shareholders) and managers (directors). It must be incorporated at Companies House.

This type of structure limits the amount of liability the shareholders and directors have to their stake in the company, which means that the finances of the people who run it are separate from the personal finances of the shareholders or directors.

A limited company can keep any profits it makes after paying tax. This means that if a shareholder or director of a limited company applies for a mortgage, they are only able to use the income that the limited company has paid them in salary or dividends (return on shares).

To apply

Limited company directors with a shareholding of 20% or more of the company are assessed as self-employed.

We’ll need confirmation of the last 2 years salary/Directors Remuneration and dividends:

Where the latest year’s income has remained the same or increased, we will use an average.
Where the income has decreased, we will use the latest year.

Example

Income has increased so we will average.

£47,000 + £53,000 / 2 = £50,000

Limited company accounts must be submitted to Companies House annually so they can be viewed by any member of the public.  Most Limited Company accounts must be filed within nine months of the accounting reference date to avoid penalties.  A company can change its accounting reference date, sometimes this means a shorter accounting period than the standard 12 months. 

 For information on customers who own less than 20% of a company and receive Dividend, please see the Income & Packaging Guide.

For limited company directors we’ll need to see the following documents:

Full and Finalised accounts:

Draft accounts are not acceptable.
Note- The year end on the accounts / tax returns must be the most recent and must not be dated more than 18 months before the date of application.

SA302 Tax Calculation:

We can accept submissions from their accountants’ software.

Tax Year overview.
Personal Bank statements.
Business Bank statements.

These documents could vary so check the case packaging requirements on the Full Mortgage Application for what we need for your specific customer.

Important notes:

The business should be making a profit and be solvent.
The dividend payments should not exceed the net profit after tax. We will not accept income from retained profit or directors’ loans (money being repaid to the director by the company).
If the company shows less profit than normal due to a one-off extraordinary acquisition (eg machinery) please supply a written letter of explanation from the company accountant.

Acceptable accountants

Audited accounts are acceptable if they’re prepared by a person who is suitably qualified and a member of an organisation; for example chartered accountant or certified accountant who belongs to:

Association of Authorised Public Accountants.
Institute of Financial Accountants.
Chartered Institute of Taxation.
Chartered Public Accountants.
Association of Accounting Technicians.
Chartered Institute of Management Accountants.
Association of Taxation Technicians.
Institute of Chartered Secretaries & Administrators.
Association of International Accountants.

Please note that this is not an exhaustive list and other appropriate professional bodies are acceptable.

FAQs

My customer has a limited company. Do I need to review the last 3 months bank statement?

If a customer is a contract worker and their income is reducing, how do we assess? For example a contract worker who previously had a £50,000 contract, which has now been replaced with a £35,000 contract.

My customer is a sole trader who only holds a personal account so can’t produce business bank statements. What should I do?

My customer has recently changed from a Sole Trader to a Limited Company- can you use their income?

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