How will your income be assessed?
If you’re self-employed, your situation will generally fall into one of the three categories below. This will affect how a lender assesses you.
If you’re a one-man band, you (or your accountant) will need to declare your income using self-assessment and have your tax calculated by HMRC. Once you’ve done this, you can ask for an SA302 form, which outlines your total income and tax paid. Lenders will then base their mortgage calculations on this information.
If you’re in business with someone else, mortgage lenders will look at your individual share of the profits (if you’re using accounts) or your individual share of total income received (if you are using SA302s).
If you form a limited company, you’ll be keeping your business accounts separate from your personal ones. As a director, you’ll usually pay yourself a basic salary and additional dividend payments during the course of the year, which will both be taken into account by lenders when you apply for a mortgage.
If you choose to retain profits in the business rather than drawing them out, this can create difficulties, as some lenders don’t factor retained profits into their calculation.
If you want more information, that is specific to your circumstances, give us a call to arrange a no obligation chat.