Are you self-employed?
If so, does the thought of trying to get a mortgage leave you sleepless at night?
I often hear people say “It’s really difficult to get a mortgage if you’re self-employed” or words to that effect.
If your business is making money and you are submitting your tax returns, it’s more about planning ahead than being “difficult”.
If you’re employed, you will probably have a contract confirming how much you earn. In addition, you will receive payslips (monthly or weekly) and you’ll receive a P60 at the end of each tax year confirming how much you’ve earned in the last financial year.
Your payslips will be evidence of your ongoing earnings from a mortgage lender’s perspective.
Being self-employed, you only get to verify your income once a year. That’s with your self-assessment tax return which is submitted via HMRC.
As a sole trader you (or your accountant) will be registered to submit your individual tax return on line. In simple terms, you’ll specify how much income you’ve received, how much you’ve spent in allowable costs and expenses and then your profit will be taxed if applicable.
If you’re a limited company director with shares, you’re still classed as self-employed even if you receive a salary – because you own part or all the business. As well as an individual self-assessment return, the limited company will need a set of annual accounts which specify how the business is doing. These accounts will break down salaries, dividends and other expenses as well as showing the turnover and profit or loss.
If you are a shareholder your percentage share-holding (for example 40%) will reflect what share of the company’s profit you should benefit from.
Lenders look at limited company directors in varying ways. For example, some may consider your salary and dividend. Others may look at your share of the company’s profit. So some may need to see your SA302s and tax year overviews (available from the HMRC website) and others may need the limited company accounts which will be provided by your accountant.
Bear in mind, your company’s financial year may not always be in sync with the end of the financial year – which runs from 6th April to 5th April the following year.
Your individual tax return dates will be associated with the most recent tax year.
Your company’s financial year may run differently, depending on when you set the business up.
Although you don’t HAVE to return your self-assessment until the end of January the year following the end of the tax year, you can submit your tax return at any time from the beginning of the following tax year.
Currently, the most recent tax year ended on the 5th April 2018. You don’t have to submit your tax return until 31st January 2019 however you could submit it any time before then.
This is where preparation is key, when it comes to planning your mortgage.
If your most recent financial year was more profitable than the last, it may be beneficial from a mortgage point of view to submit your most rent tax return to improve your mortgage affordability.
So if your mortgage is due for renewal any time before the end of January 2019 you may be benefitted by submitting your tax return early. However, if you’ve had a lot of expenses or costs during the most recent tax year and your profits are likely to be reduced, it would be better to submit your mortgage application on last year’s figures.
Another thing to bear in mind is that although you don’t have to submit your new tax return until next January, your year ending 2017 tax return will be 18 months out of date from October this year, therefore you may be unable to use them to verify your income from November 2018 onwards.
You therefore have a potential “grey area” from November 2018 when your tax return is 18 months old, to the end of January 2019 which is the allowable deadline for you to submit your latest return.
It may therefore be advisable, if you are self-employed, to seek the assistance of a mortgage advisor who should be able to help you identify when is the best time for you to apply and also to assess which would be the most appropriate lenders to accommodate you, dependent upon your financial circumstances.
Seeking the advice of an accountant to help you with your tax affairs may be useful especially if you have additional sources of income such as pensions, dividends from other companies, earned income or rental income.
For help on downloading your SA302 (tax returns) and tax year overviews, click here:
https://www.gov.uk/sa302-tax-calculation
Your home may be repossessed if you fail to keep up the repayments on your mortgage.
Heide Swift
Telephone: 01525 309300
Mobile: 07903 302895
Email: heide@swift-mortgages.com
#SwiftMortgages
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