Self employed mortgage application - net profit or taxable profits?

flatface

Hi everyone I'm a first time buyer and in the process of applying for a mortgage with my partner. He's in full time employment but I'm self employed which is leading to all sorts of fun & games at the bank!

Unfortunately, as I do my own books rather than use an accountant, the bank wont accept any figures from 2013/14 until I submit my tax return on 6th April and it becomes "official". This is very frustrating as I have both my business & current account with the bank so thought it would be easier going somewhere that could already see what I have going in & out every month.

Otherwise they said the only other option is to take an average from my last three submitted tax returns which date all the way back to 2010 and don't represent my earnings as they are today. My business has grown significantly since then and on paper I look like a much better candidate for a mortgage with the more recent figures showing the growth. Anyway, that's all annoying but I'm prepared to wait until the 6th if that's what it takes.

Today we had a meeting with the mortgage manager at the bank and we used my "net profit" figures (from 11/12, 12/13 and projected 13/14) to calculate my average income for the agreement in principle. When I got home I had an email from him saying he'd made a mistake and the "net profit" needs to be my total profit minus the annual investment allowance. But from the wording on the HMRC self assessment form, that would be the "total taxable profit", not "net profit". He keeps insisting I need the figures from the "net profit" section of the form but I think he's muddling up his terminology. He didn't actually know what capital allowances were and his emails are a bit confusing so I'm slightly worried he's not 100% on the ball.

Does anyone know whether the bank need my net profit (section 20 on the self assessment form) or total taxable profit (section 30) figures?

Also, any positive stories about getting a mortgage as a sole trader? I could do with a pick me up today!

kingstreet

And "the bank" would be...?

Lenders normally take your SA302 earnings, which IIRC is the figure from box 30 of the Self Employed supplement (SA103s) of the SA100 tax return. This is your gross income after expenses, but before tax and NI.

Some lenders take an average of the last three years' net profit, but may use the latest year alone if it's showing progressive increases each year.

You may well have been better off using a broker, as it sounds like you're dealing with some very odd people.

flatface

Sorry I wasn't sure if we were supposed to name the bank. It's HSBC.

I thought the figure in section 30 is what he was getting at but he keeps using all the wrong terms and it's getting awfully confusing!

I did see a broker initially but he was very patronising towards me when I went in alone and I later discovered it was the chap who swindled my partner's parents back in the day, so decided to stay clear of him. Couldn't get a decent recommendation for anyone else in town so thought it would be easy to stick to HSBC. How wrong I was! I've been in there three times and essentially had the same meeting with no progress made. Roll on April 6th...

amnblog

The profit from self-employment is the key figure.

That is the figure on which income tax is paid (after personal allowances have been set against it).

As you appear to be a sole trader, as KS says, it is your income less deductible business expenses.

flatface

amnblog wrote: »

The profit from self-employment is the key figure.

That is the figure on which income tax is paid (after personal allowances have been set against it).

As you appear to be a sole trader, as KS says, it is your income less deductible business expenses.

This is where the confusion arises as "net profit" in section 20 is the total profit minus all deductible business expenses except the annual investment allowance. The taxable profit after deducting the annual investment allowance is called something else.

Bank say "net profit" but don't seem to mean the "net profit" total on the form. Common sense makes me think they want the amount that I paid tax on, so the final figure on the form, "total taxable profits." But the mortgage manager insists this is called "net profit", which it isn't. :eek:

kingstreet

Phone HMRC and ask them for your SA302s for the last three years.

If you have a fax machine, badger them and they will fax them to you the same day; otherwise you'll be waiting a week or two for them in the post.

The figure next to "Total Income Received" is what lenders use. They don't use the "Total Income On Which Tax Is Due" figure as that is after deduction of your personal allowance.

Simon_gloster

Whatever you have declared to HMRC is what you earnt and the right tax applied accordingly is what they will use. If you say you earned £49k but paid tax on £12k, they'll use £12k.

flatface

Thanks guys. I thought as much but when the mortgage manager keeps using all the wrong terms it doesn't exactly fill me with confidence!

amnblog

He is probably still to go on his training course ready for April 26th.