Self employed - can I take out a loan?

nickackland

Hello.

I am hoping to take out a loan to purchase a new vehicle, but due to my personal circumstances, I am unsure if I will even be considered, and do not want to make an application, be unsuccessful, and damage my credit rating for the future. I hoped somebody might be offer me their opinion(s).


In March 2011 I was offered a great job. The arrangement is that I earn a set 25k a year (plus expenses) but I am registered self-employed. My invoice is the same amount each month (ignoring expenses) to the same company.

I am 26.
I have a mortgage.
I have a personal loan - this was a 15k personal loan taken out 2.5 years ago to help with house renovations.

I have never defaulted on a payment, but am concerned that because I have only been self employed for 10 months, this will count against me.

Can you offer any advice?

Nick

CLAPTON

with an existing 15k loan and an income of only 25k you are unlikely to get another loan even as an employee; being self employed will just make it harder.

and you don't damage your credit file by simply applying for a loan whether you get rejected or accepted (only the application is shown on the credit record)


and you don't seem to be self employed to me anyway; the tax man may not like your situation.

skintandscared_2

I'm afraid I don't know anything about the self-employed element of obtaining a loan, but there has been a lot of advice on these threads about loans being less likely to be given these days if they take your total commitment to more than 50% of your salary. Depending on how much of a loan you wanted for your vehicle, the loan for that PLUS the balance outstanding on the current loan would need to be less than £12.5k to satisfy that hurdle. Is that likely?

nickackland

Thank you for your reply Clapton

I am a little concerned at your last sentence?!

I am registered self-employed, working for one company, declaring all income and paying my taxes and NI direct to the tax man. In fact, I have just paid my first tax bill without any issues. Could you please explain your comment? (Judging by the quantity of posts you have made, you have a far better understanding on these issues, and I would be interested to have your thoughts.)

nickackland

Thank you for your comment S&S.

skintandscared wrote: »

Depending on how much of a loan you wanted for your vehicle, the loan for that PLUS the balance outstanding on the current loan would need to be less than £12.5k to satisfy that hurdle. Is that likely?

I would be looking to spend in the region of £6,000 on the replacement car.

Approx 12k outstanding on 1st loan.

= £18,000, so no.

skintandscared_2

nickackland wrote: »

Thank you for your comment S&S.



I would be looking to spend in the region of £6,000 on the replacement car.

Approx 12k outstanding on 1st loan.

= £18,000, so no.

hmmm, so your current commitment is 48% and the further amount would take it to 72%. You could try asking your own bank, but I have to say I think it's unlikely they would accept, sorry

Tixy

nickackland wrote: »

Thank you for your reply Clapton

I am a little concerned at your last sentence?!

I am registered self-employed, working for one company, declaring all income and paying my taxes and NI direct to the tax man. In fact, I have just paid my first tax bill without any issues. Could you please explain your comment? (Judging by the quantity of posts you have made, you have a far better understanding on these issues, and I would be interested to have your thoughts.)

The company benefits if you are self-employed as you don't have employee rights and the pay less tax (they don't have to pay employers NI on your salary).

HMRC frequently review whether people purported to be self-employed or subcontractors are in reality what they are registered as
Take a look at this link http://www.hmrc.gov.uk/employment-status/index.htm

Firefox1975

I don;t think the tax man would class you as self employed either.

It all revolves around your ongoing relationship with the company. if you were doing perhaps 12 different invoices a year to 12 different companies then that is fine. But, because it is an ongoing contract the tax man takes a dim view because.

a) the company is underpaying Employers NI
b) there's no guarantee you will declare all your income and there's no way they could possibly trace you as the values involved are so low (for them) but so rewarding (for you). Therefore they put the onus on companies to play by the rules and class contractors as employees for PAYE purposes.

As far as you are concerned your probably doing everything correct. Did you consult with an accountant prior to this arrangement? what other "expenses" are you claiming when you offset your income?

skintandscared_2

May depend on the industry. I've just checked via that link (as I was a little worried too!) and my OH is a self employed painter in the construction industry. He submits weekly invoices and the sub-contractor deducts tax, although OH has to pay his own NI. According to the link he is self-employed.

stephendykes

The question was about a loan so I don't see why discussing Nick's relationship with the taxman is helping answer the question. For the record Nick, get your accountant/umbrella company to carry out an IR35 compliance assessment and that will determine if you're payng the right tax or not.

With regards to the loan situation, I'm in a very similar situation in that I have been self-employed for 16 months and get paid through my own Ltd co (Paying all due taxes) and just want to know which lenders are sensitive to Self-Emplyed applicants? Somebody mentioned Clydesdale Bank and a Google search would appear to back this up but any other suggestions would be appreciated.

Tixy

stephendykes wrote: »

The question was about a loan so I don't see why discussing Nick's relationship with the taxman is helping answer the question.

The question is also 5months old, and Nick asked for some further information regarding the potential issue with his employment status.

He also never mentions trading as a limited company, or through any form of intemidiary, IR35 was not the issue that was being raised.

stephendykes wrote: »

With regards to the loan situation, I'm in a very similar situation in that I have been self-employed for 16 months and get paid through my own Ltd co (Paying all due taxes) and just want to know which lenders are sensitive to Self-Emplyed applicants? Somebody mentioned Clydesdale Bank and a Google search would appear to back this up but any other suggestions would be appreciated.

Most banks will consider someone in your situation a higher risk than someone who has been employed with a constant (unconnected) employer for a longer period of time, or someone who has been trading as you have but for a longer period of time.

If you pay yourself a regular amount into one bank account then I would approach that bank first with regards to a loan in your situation.