Self-employed mortgage advice
Discussion
Will soon be seeking a mortgage and have been self-employed sole trader for 2.5 years.
I understand a need for SA302 by most lenders.
1st year accounts not great as it was only for a few months.
2nd year better
3rd year (present financial year) will be best, unable to submit until Apr of this year.
I always seek maximum expenses where lawfully possible - obviously this affects net profit figure - which will actually hurt my mortgage application.
So I will need to take a tax hit this year in order to maximise borrowing potential.
Should I/can I amend the submission for the previous year too or any other advice?
I understand a need for SA302 by most lenders.
1st year accounts not great as it was only for a few months.
2nd year better
3rd year (present financial year) will be best, unable to submit until Apr of this year.
I always seek maximum expenses where lawfully possible - obviously this affects net profit figure - which will actually hurt my mortgage application.
So I will need to take a tax hit this year in order to maximise borrowing potential.
Should I/can I amend the submission for the previous year too or any other advice?
Have you been issued with SA302 (HMRC TAx Calculations) for the various years involved?
90% of the time, HMRC do not issue these.
One of the main problems of Self Assessment is that HMRC are a step removed from the assessment of Income Tax liabilities. This is now the responsibility of the taxpayer - that's why it's called "SELF Assessment".
The only occasions where HMRC issue an SA302 are when -
the taxpayer submits the tax return BEFORE 31 October and does not calculate their own tax liability
the taxpayer or the agent has made a serious error in calculating the tax when submitting the return and HMRC has to issue an SA302 to show the corrected liability
there has been a tax investigation into the taxpayer's affairs and revised tax calculations need to be made by HMRC
In the days before Self Assessment was introduced (1995/96), HMRC automatically issued a Tax Assessment whenever a tax return was submitted. Banks and other lenders used to always ask for these Tax Assessments when reviewing the Income levels of self-employed sole traders. Now that they have decided to check incomes a bit more thoroughly again, they are asking for the modern equivalent of an old fashioned tax assessment - the SA302. But, as I mentioned above, the problem is that HMRC rarely issue these.
90% of the time, HMRC do not issue these.
One of the main problems of Self Assessment is that HMRC are a step removed from the assessment of Income Tax liabilities. This is now the responsibility of the taxpayer - that's why it's called "SELF Assessment".
The only occasions where HMRC issue an SA302 are when -
the taxpayer submits the tax return BEFORE 31 October and does not calculate their own tax liability
the taxpayer or the agent has made a serious error in calculating the tax when submitting the return and HMRC has to issue an SA302 to show the corrected liability
there has been a tax investigation into the taxpayer's affairs and revised tax calculations need to be made by HMRC
In the days before Self Assessment was introduced (1995/96), HMRC automatically issued a Tax Assessment whenever a tax return was submitted. Banks and other lenders used to always ask for these Tax Assessments when reviewing the Income levels of self-employed sole traders. Now that they have decided to check incomes a bit more thoroughly again, they are asking for the modern equivalent of an old fashioned tax assessment - the SA302. But, as I mentioned above, the problem is that HMRC rarely issue these.
Hi Eric
No I haven't.
I always submit on-line & they're accurate.
I've read I can call HMRC and request they send me the forms however.
I'm guessing I'll have to wait until I submit for the current financial year, not include any expense claims and then request the forms in April - hopefully it'll include 2012/2013. I could always then amend the submission afterwards - if what I am guessing is how it all works.
Think I need to see an IFA!
No I haven't.
I always submit on-line & they're accurate.
I've read I can call HMRC and request they send me the forms however.
I'm guessing I'll have to wait until I submit for the current financial year, not include any expense claims and then request the forms in April - hopefully it'll include 2012/2013. I could always then amend the submission afterwards - if what I am guessing is how it all works.
Think I need to see an IFA!
There is a strong push toward SA302's by Lenders. We have never had any problem when clients request SA302's from HMRC, as Eric says they rarely issue them so you have to request them.
It is catch 22 unfortunately when looking for borrowing, drive down profit with expenses which then redices the amount you can borrow.
Some Lenders will take an average of the last 3 years net profit, some the last 2. A large % of our clients are self employed so we are in regular contact with Lenders about their criteria on this.
It is catch 22 unfortunately when looking for borrowing, drive down profit with expenses which then redices the amount you can borrow.
Some Lenders will take an average of the last 3 years net profit, some the last 2. A large % of our clients are self employed so we are in regular contact with Lenders about their criteria on this.
There will be no 2012/13 SA302s yet because we haven't even reached the end of tax year 2012/13.
Are you seriously suggesting that you are going to deliberately omit some legitimate business costs to show a higher profit for the year 2012/13?
Be very, very careful about this. IF the lender reviews three years worth of figures and suddenly sees a very profitable third year compared to the two previous years, you had better have very good explanations ready to be able to justify why some expense headings look radically different to those in earlier years.
Are the lenders not asking to see your formal accounts as well? After all, the assumption should be that the figures showing in an SA302 for a self employed individual will be based on formal business accounts.
The SA302 is merely the tax calculation based on the declared business profits. A set of accounts had to be prepared first to arrive at those profits.
And I wonder why lenders put any store on SA302s in the first place. They are not tax assessmemnts and HMRC does not stand by any of the figures showing in them. In other words, they are not "proof" of anything and the one thing they are most definitely not proof of is any sort of agreement to the figures by HMRC.
Are you seriously suggesting that you are going to deliberately omit some legitimate business costs to show a higher profit for the year 2012/13?
Be very, very careful about this. IF the lender reviews three years worth of figures and suddenly sees a very profitable third year compared to the two previous years, you had better have very good explanations ready to be able to justify why some expense headings look radically different to those in earlier years.
Are the lenders not asking to see your formal accounts as well? After all, the assumption should be that the figures showing in an SA302 for a self employed individual will be based on formal business accounts.
The SA302 is merely the tax calculation based on the declared business profits. A set of accounts had to be prepared first to arrive at those profits.
And I wonder why lenders put any store on SA302s in the first place. They are not tax assessmemnts and HMRC does not stand by any of the figures showing in them. In other words, they are not "proof" of anything and the one thing they are most definitely not proof of is any sort of agreement to the figures by HMRC.
Eric Mc said:
There will be no 2012/13 SA302s yet because we haven't even reached the end of tax year 2012/13.
Are you seriously suggesting that you are going to deliberately omit some legitimate business costs to show a higher profit for the year 2012/13?
Be very, very careful about this. IF the lender reviews three years worth of figures and suddenly sees a very profitable third year compared to the two previous years, you had better have very good explanations ready to be able to justify why some expense headings look radically different to those in earlier years.
Are the lenders not asking to see your formal accounts as well? After all, the assumption should be that the figures showing in an SA302 for a self employed individual will be based on formal business accounts.
The SA302 is merely the tax calculation based on the declared business profits. A set of accounts had to be prepared first to arrive at those profits.
And I wonder why lenders put any store on SA302s in the first place. They are not tax assessmemnts and HMRC does not stand by any of the figures showing in them. In other words, they are not "proof" of anything and the one thing they are most definitely not proof of is any sort of agreement to the figures by HMRC.
Eric,Are you seriously suggesting that you are going to deliberately omit some legitimate business costs to show a higher profit for the year 2012/13?
Be very, very careful about this. IF the lender reviews three years worth of figures and suddenly sees a very profitable third year compared to the two previous years, you had better have very good explanations ready to be able to justify why some expense headings look radically different to those in earlier years.
Are the lenders not asking to see your formal accounts as well? After all, the assumption should be that the figures showing in an SA302 for a self employed individual will be based on formal business accounts.
The SA302 is merely the tax calculation based on the declared business profits. A set of accounts had to be prepared first to arrive at those profits.
And I wonder why lenders put any store on SA302s in the first place. They are not tax assessmemnts and HMRC does not stand by any of the figures showing in them. In other words, they are not "proof" of anything and the one thing they are most definitely not proof of is any sort of agreement to the figures by HMRC.
Lenders don't like to rely on formal accounts as it's easy to bung a hooky accountant mate a few hundred quid to knock a set of accounts to show any figures the applicants needs.
The SA302's are supposed to be a step further and be verification of the figures submitted to HMRC. It's supposed to be a more reliable way of verifying income, whether it's actually true or not who knows. If I was a lender I'd be wary of lender hundres of thousands of pounds to someone on the strength of some flakey accounts produced by 'Daves Accountants'.....
The problem is that the lenders seem to think that because the calculation is printed on HMRC paper that somehow HMRC have "verified" or "agreed" the figures. Legally they have done no such thing. This was a major change when Self Assessment was introduced and one which it seems the world at large - including Mortgage Providers, do not fully understand.
The figures shown on an SA302 provide not one jot of real assurance over and above the figures provided by the tax payer and/or his accountant.
If anybody thinks they do - they are completely mistaken.
The figures shown on an SA302 provide not one jot of real assurance over and above the figures provided by the tax payer and/or his accountant.
If anybody thinks they do - they are completely mistaken.
Bit of googling suggests not all lenders will need to see one (as of December last year, anyway). A broker should be able to get the list of who requires what.
I did find this, that made me laugh...
I did find this, that made me laugh...
accountingweb said:
Fine unless you deal with Woolwich who rejected them for one of my clients. Despite having an HMRC stamp on them and a covering letter attached stating they were copies of SA302's, the copies did not actually state "SA302" on them so the client was told they were not valid.
"Computer says no" at it's finest.
The SA302s lend no further assurance to the figures. That's the point I'm making. They are not a mark of approval , acceptance or agreement by HMRC. They would not indicate whether accounts were prepared by "hooky" accountants or "angelic" accountants or no accountants at all.
In fact, if the accountant was doing his job properly and making appropriate and fuly correct Capital Allowance claims, the SA302 would be downright misleading (even though 100% correct) and could lead the lender to assume that the business profits and the applicants income was much lower than it actually was for the year.
Here is a quote from a forum where somebody could not get through to the numpties at Santander WHY business profits and taxable profits shown on the SA302 need not (in fact, hardly ever will) be the same amounts -
"We recently applied for a mortgage from Santander. I am self employed. It has been nothing but hassle. We have now been stuck for nearly 5 days with them unable to understand capital allowances, due to my SA302 showing a different income compared to my accounts. Anyone else had this problem?"
In fact, if the accountant was doing his job properly and making appropriate and fuly correct Capital Allowance claims, the SA302 would be downright misleading (even though 100% correct) and could lead the lender to assume that the business profits and the applicants income was much lower than it actually was for the year.
Here is a quote from a forum where somebody could not get through to the numpties at Santander WHY business profits and taxable profits shown on the SA302 need not (in fact, hardly ever will) be the same amounts -
"We recently applied for a mortgage from Santander. I am self employed. It has been nothing but hassle. We have now been stuck for nearly 5 days with them unable to understand capital allowances, due to my SA302 showing a different income compared to my accounts. Anyone else had this problem?"
Santander is a good example: my bold...
Santander said:
Preparing for your mortgage appointment
Important documents required
...
2) Income details - self employed customers
We need to confirm your gross and net profit figures for the last three years, as well as salary and dividend income where applicable.
The form SA302 confirms this, which can be obtained from your tax office. If your SA302 is not available we can review a reference from a suitably qualified accountant, or your most recent set of accounts.
linkImportant documents required
...
2) Income details - self employed customers
We need to confirm your gross and net profit figures for the last three years, as well as salary and dividend income where applicable.
The form SA302 confirms this, which can be obtained from your tax office. If your SA302 is not available we can review a reference from a suitably qualified accountant, or your most recent set of accounts.
R0nin said:
Will soon be seeking a mortgage and have been self-employed sole trader for 2.5 years.
I understand a need for SA302 by most lenders.
1st year accounts not great as it was only for a few months.
2nd year better
3rd year (present financial year) will be best, unable to submit until Apr of this year.
I always seek maximum expenses where lawfully possible - obviously this affects net profit figure - which will actually hurt my mortgage application.
So I will need to take a tax hit this year in order to maximise borrowing potential.
Should I/can I amend the submission for the previous year too or any other advice?
Anyway, everyone seems to be getting their knickers in a twist about SA302's and not actually answering your questions.I understand a need for SA302 by most lenders.
1st year accounts not great as it was only for a few months.
2nd year better
3rd year (present financial year) will be best, unable to submit until Apr of this year.
I always seek maximum expenses where lawfully possible - obviously this affects net profit figure - which will actually hurt my mortgage application.
So I will need to take a tax hit this year in order to maximise borrowing potential.
Should I/can I amend the submission for the previous year too or any other advice?
For the record, NOT every lender will ask you for SA302's. What they will and won't take will vary greatly from lender to lender and will depend hugely on the LTV and your credit score.
Most lenders will take an average figure across 2 or 3 years accounts, so taking a tax hit and creating a higher net profit for this years account may not have as much an impact as you'd think. Without knowing the purchase figures and earnings figures it's hard to give any more input.
Eric Mc said:
How about showing the TRUE profit.
After all, isn't that what the lenders want you to do - irrespective of the piece of paper you give to them
(Although I will argue until the cows come home that the lenders are being beyond dumb in puting so much faith in the SA302).
Eric, You're preaching to the choir.After all, isn't that what the lenders want you to do - irrespective of the piece of paper you give to them
(Although I will argue until the cows come home that the lenders are being beyond dumb in puting so much faith in the SA302).
From my point of view as a Mortgage Broker, who cares what the TRUE profit is? For this purpose it's irrelevant. My job is to match lenders criteria to clients details and complete mortgages. If the criteria requires Documents A,B & C then thats what I give them. There's no point me banging my head against the wall about the value of an SA302. They give me a hoop, I jump through it. Until the point when the lenders arrears books start to include cases where they collected SA302's which proved to be false and they change their requirements, I'll keep providing SA302's or whatever else they request.
Eric Mc said:
And that folks, is precisely why we have ended up in such a mess.
An open admission that truthful disclosure of income to a mortgage lender is not important to them.
In all walks of life, reliance on self declaration and self assessment, leads to self destruction.
HahaAn open admission that truthful disclosure of income to a mortgage lender is not important to them.
In all walks of life, reliance on self declaration and self assessment, leads to self destruction.
"An open admission"
Have you started on the whiskey early this morning?? I'm not a mortgage lender so cannot admit that truthful disclosure is not important to them.
My point was that lenders do not have qualified Accountants amongst their staff. Most staff are barely able to read a standard pay slip. So when it comes to the self employed they revert to what they (wrongly) think is a safe default position which is to rely on SA302's. This will remain until they get burn't as they did 5 years ago when they realised that the Accountant's Certificates and Self Cert mortgages they lent against were worthless.
As a mortgage broker, if a lender ask for a SA302 am I supposed to debate the merit of the document as it's not a true indication of anything really, or just get my client to get the SA302 as requested and get the mortgage agreed?
Gassing Station | Finance | Top of Page | What's New | My Stuff