bank wont take retained profits into consideration 4 lending
Discussion
Thanks For Looking
Looking to remortgage my property to release funds, I’m registered as a self-employed LTD company.
when looking into my 2019-2020 accounts and cooperation tax. My banker has come back with the below.
”I can see that the dividends were reduced & more profit was retained in the co accounts, due to the forever changing lending criteria with the current pandemic, banks are not taking retained profits into consideration”
I will speak to our accountant. As cash is always needed through remortgages and borrowing through my earnings. How is it best to structure my yearly tax accounts in order to ensure I don’t hit lending/ afford issues in the future when releasing equity from my home/assets
Thanks
Looking to remortgage my property to release funds, I’m registered as a self-employed LTD company.
when looking into my 2019-2020 accounts and cooperation tax. My banker has come back with the below.
”I can see that the dividends were reduced & more profit was retained in the co accounts, due to the forever changing lending criteria with the current pandemic, banks are not taking retained profits into consideration”
I will speak to our accountant. As cash is always needed through remortgages and borrowing through my earnings. How is it best to structure my yearly tax accounts in order to ensure I don’t hit lending/ afford issues in the future when releasing equity from my home/assets
Thanks
Mr Pointy said:
Eric Mc said:
And you are not "self employed" in the tax and legal definition of the term.
You told me off once when I said that 
I got told off by someone here as well for trying to point out that you cannot be "self employed" and operate through a limited company.
Similar position to you
Firstly you are employed not self employed
Increase your salary to the level you need . Pay the PAYE due and assuming your company makes the profit then in 2/3 years you will have the track record your bank needs,
Alternatively wind up the Ltd co and trade as a sole trader and revisit in 2/3 years
You can’t have it both ways !
Firstly you are employed not self employed
Increase your salary to the level you need . Pay the PAYE due and assuming your company makes the profit then in 2/3 years you will have the track record your bank needs,
Alternatively wind up the Ltd co and trade as a sole trader and revisit in 2/3 years
You can’t have it both ways !
Do you mean your current lender won't accept your LTD company profit? They will only assess your income in the form of salary and dividend and are ignoring the actual profit your LTD company has made?
Most lender will indeed assess you based on salary and dividends. But not all.
There are a few that will assess you on salary and your Ltd company profit. That's usually after corporation tax, there is even one that will use your profit before corporation tax.
I've written a blog post about it here Self Employed Mortgage Affordability
Most lender will indeed assess you based on salary and dividends. But not all.
There are a few that will assess you on salary and your Ltd company profit. That's usually after corporation tax, there is even one that will use your profit before corporation tax.
I've written a blog post about it here Self Employed Mortgage Affordability
Edited by Mortgage_tom on Tuesday 2nd February 01:12
Mortgage_tom said:
Do you mean your current lender won't accept your LTD company profit? They will only assess your income in the form of salary and dividend and are ignoring the actual profit your LTD company has made?
Most lender will indeed assess you based on salary and dividends. But not all.
There are a few that will assess you on salary and your Ltd company profit. That's usually after corporation tax, there is even one that will use your profit before corporation tax.
I've written a blog post about it here Self Employed Mortgage Affordability
One of those lenders also allows for a remortgage to raise capital for business purposes.Most lender will indeed assess you based on salary and dividends. But not all.
There are a few that will assess you on salary and your Ltd company profit. That's usually after corporation tax, there is even one that will use your profit before corporation tax.
I've written a blog post about it here Self Employed Mortgage Affordability
Edited by Mortgage_tom on Tuesday 2nd February 01:12
UpTheIron said:
you are not self employed
I have some sympathy with the OP though. I've lost count of the number of arguments I've had with mortgage lenders, insurance companies and so on.You're not self employed.....right up until the point in the conversation when they ascertain you are a PAYE employee of a LTD company which you own shares in. Then you are self employed. And no amount of "but but but" will persuade them otherwise.
48k said:
UpTheIron said:
you are not self employed
I have some sympathy with the OP though. I've lost count of the number of arguments I've had with mortgage lenders, insurance companies and so on.You're not self employed.....right up until the point in the conversation when they ascertain you are a PAYE employee of a LTD company which you own shares in. Then you are self employed. And no amount of "but but but" will persuade them otherwise.
It’s a shame that lenders don’t recognise the true definition of self employed but they get really patronising when you try to explain they are wrong. Fact is it’s their ball and they make the rules.
trickywoo said:
48k said:
UpTheIron said:
you are not self employed
I have some sympathy with the OP though. I've lost count of the number of arguments I've had with mortgage lenders, insurance companies and so on.You're not self employed.....right up until the point in the conversation when they ascertain you are a PAYE employee of a LTD company which you own shares in. Then you are self employed. And no amount of "but but but" will persuade them otherwise.
It’s a shame that lenders don’t recognise the true definition of self employed but they get really patronising when you try to explain they are wrong. Fact is it’s their ball and they make the rules.
How would that sit?
trickywoo said:
48k said:
UpTheIron said:
you are not self employed
I have some sympathy with the OP though. I've lost count of the number of arguments I've had with mortgage lenders, insurance companies and so on.You're not self employed.....right up until the point in the conversation when they ascertain you are a PAYE employee of a LTD company which you own shares in. Then you are self employed. And no amount of "but but but" will persuade them otherwise.
It’s a shame that lenders don’t recognise the true definition of self employed but they get really patronising when you try to explain they are wrong. Fact is [b]it’s their ball and they make the rules[/b[.
Their ball their rules, just have to get on with it.
48k said:
Exactly this. "Sorry, that mortgage rate is not available to self-employed", "yes your car insurance premium is more expensive because you're self employed". Meanwhile the government: "No sorry you can't apply for this grant it's only available to self employed".
Their ball their rules, just have to get on with it.
Lenders don't have different products for employed and self-employed.Their ball their rules, just have to get on with it.
Mortgage_tom said:
Do you mean your current lender won't accept your LTD company profit? They will only assess your income in the form of salary and dividend and are ignoring the actual profit your LTD company has made?
Most lender will indeed assess you based on salary and dividends. But not all.
There are a few that will assess you on salary and your Ltd company profit. That's usually after corporation tax, there is even one that will use your profit before corporation tax.
I've written a blog post about it here Self Employed Mortgage Affordability
Yes, i think they are only looking at the salary and dividend.Most lender will indeed assess you based on salary and dividends. But not all.
There are a few that will assess you on salary and your Ltd company profit. That's usually after corporation tax, there is even one that will use your profit before corporation tax.
I've written a blog post about it here Self Employed Mortgage Affordability
Edited by Mortgage_tom on Tuesday 2nd February 01:12
Banker responded with the below.
In the past, the banks were taking either the retained profits in the business account or the personal taxable income, whichever was greater, but due to COVID, the retained profits are not taken for assessment, only the tax paid drawings or dividends.
Thanks for responding!
RegMolehusband said:
I too, as a director and 100% shareholder in my Ltd company, was told I was self-employed when applying for a mortgage several years ago.
I had to produce three years of company accounts.
From me, they wanted this plus my last 3 years Self-Assessment calculations and statements.I had to produce three years of company accounts.
Despite being [minimal] PAYE, they too classified me as Self-Employed because I am the sole shareholder in the Ltd company which pays my salary & dividends.
RegMolehusband said:
I too, as a director and 100% shareholder in my Ltd company, was told I was self-employed when applying for a mortgage several years ago.
I had to produce three years of company accounts.
The problem is the loose use of the term "self employed". In reality, nobody can employ themselves so, in that context, it is a nonsense phrase.I had to produce three years of company accounts.
I blame the Inland Revenue who decided, about 30 years ago, in their misguided wisdom, to start using the expression "self employed" in place of the older and more correct term "sole trader".
In HMRC's view, a self employed person is a sole trader. The two expressions are interchangeable.
However, many people operate through a limited company - often as the only director of the company and the only shareholder. For many years, this was not legally permitted. Companies used to need a minimum number of shareholders and a minimum number of directors - in other words, a "company" of individuals coming together to run a business.
The notion that a "company" could consist of just one person did not make any logical sense and was not allowed in law.
That changed in the 1990s when company law was changed to allow single person companies. However, even with such a single person, the individual can still not really claim they are "self employed". They are employed by the company. That is the legal position - even if the "company" consists of only one director/shareholder.
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