Is this legal?!

alx3365

I’m looking for some advice quite urgently.

I’m afraid my brother might be doing something that’s quite risky and of very dubious legality and I’d really appreciate some feedback.

He’s self-employed and has been trading for about four years as a company director of a small start up company. He hasn’t been taking much way in the way of dividends and salary up until this current year of trading (from what he told me anyway). And I don’t think his company has made a profit on paper yet (in their first three years of trading).

But now he wants to get a mortgage and doesn’t want to wait another 2-3 years before being able to demonstrate to a lender that he has had a sufficiently high enough past income to justify being awarded a mortgage.

He’s mentioned that he needs confirmation from HMRC that over the previous two years he’s been earning an amount that is significantly greater then the amount he in reality has been taking home (btw, is this really all he needs? He isn’t one for details. Won’t lenders ask for company accounts that are signed off by certified accountants? As I mentioned above, I don’t think the company has made a profit as of yet).

His big plan is that he’ll just amend last year’s self-assessment (2012-13) by inflating his income on that return as well as inflate his income on this year’s self-assessment (through a mixture of dividends and salary).

He’s very willing to pay HMRC all the extra tax that goes along with it, because as he sees it business has picked up so massively in the last 5-6 months that he now has the money to pay off the extra tax as well as raise the capital for a deposit very soon and comfortably manage a mortgage which he says will cost less in repayments then the rent he’s currently paying.

Now amending your previous tax returns so that you can pay the taxman MORE money sounds a little crazy to me, but what’s perturbing me a lot more is the legality of what he is doing.

This is clearly not legal and I’ve had a long frustrating conversation with him about the fact that he’s misrepresenting the lender. He is of the opinion that he’s declaring the same income to the lender as he is to the taxman and feels his business has turned a corner with a some very large retainer contracts so it’ll all be fine.

He seems to think the risks are so negligible as to (practically) disregard them. I imagine he’d only need to wait another year or two before he’ll be in a position to get the mortgage he wants anyway, but he’s clearly not one to wait.

Could someone pls advise as to the risks he’s taking and what he’s really taking on here?

Thanks!

amnblog

Well you and I know this is fraud - but what do we know to make him realise this just won't work.

The first thing to say is that he is right about the Sa302s from HMRC being used to prove his drawn income. It is possible to alter them post assessment but unusual. HMRC may smell a rat and investigate his business to check he has been making the correct declarations and paying the correct tax. His tax will be underpaid and they will probably fine him for that.

The lender may want to see the accounts and this means full accounts signed by a qualified accountant and the customer. Lenders check that the income drawn can be covered by the profit generated.

They may also ask to see business bank statements to prove the income has been coming in. They will certainly ask for personal bank statements.

He will need to prove the source of his deposit and if that is coming from the business the lender typically asks for the accountant to confirm drawing the funds will not effect the business.

If the Lender suspects he is trying to dupe them they will decline him, put him on a lenders blacklist, and probably report him to SOCA.

If he goes direct to lender he will trip up. If he goes via a broker a straight one will have alarms bells ringing on day one.

We would drop the case if we suspected anything and like lenders, brokers should report anything unusual to SOCA.

ACG

Its mortgage fraud.
It is illegal and if he gets found out he will be on the naughty list and might find it difficult to get a mortgage forever more.

amnblog

BTW there are lending sources that may consider him legitimately before he builds two or three years good income history.

Yorkie1

ACG wrote: »

Its mortgage fraud.
It is illegal and if he gets found out he will be on the naughty list and might find it difficult to get a mortgage forever more.

Not to mention other financial services such as bank accounts, insurance, etc.

anselld

You mention dividends and salary, which implies limited company, which implies accounts submitted to Companies House, etc, etc. Perhaps as a sole trader he could get away with it, but surely as a ltd co it will be blatantly obvious.

alx3365

Thanks for this guys!

I spoke with him again and forwarded him some of your comments so hopefully it'll help. Personally if he's earning good money I don't see why he doesn't just hold off till a couple of years down the line.

amnblog, you mention there may be lending sources that would be willing to consider people before they build a couple of years of solid income history. Do you have any insights into how one would go about approaching them/ finding out who they are? I'm guessing if he's got the idea of taking a mortgage out into his head then he's at least better off speaking to lenders willing to hear him out with his straight legit story even if the rates they charge are bound to be far higher.

gaz141

one of my friends is self employed and may be looking for a mortgage soon. He has been told by his accountant that mortage lenders no longer need to see his books for the last few years but only what he has paid in HMRC contributions. He does not earn a great deal but his accountant has advised him to inflate his income and pay the tax on this ficticious income and declare that income so he can get a mortgage. This sounds so dodgy to me and I worry for him

PeacefulWaters

Let me get this straight.

He wants to pay more tax so that he can be blacklisted from all credit products and possibly go to prison?

Idiot.

amnblog

gaz141 wrote: »

one of my friends is self employed and may be looking for a mortgage soon. He has been told by his accountant that mortage lenders no longer need to see his books for the last few years but only what he has paid in HMRC contributions. He does not earn a great deal but his accountant has advised him to inflate his income and pay the tax on this ficticious income and declare that income so he can get a mortgage. This sounds so dodgy to me and I worry for him

Your friend needs to change his accountant as the one he has is crooked, and misinformed.

amnblog

alx3365 wrote: »

Thanks for this guys!

I spoke with him again and forwarded him some of your comments so hopefully it'll help. Personally if he's earning good money I don't see why he doesn't just hold off till a couple of years down the line.

amnblog, you mention there may be lending sources that would be willing to consider people before they build a couple of years of solid income history. Do you have any insights into how one would go about approaching them/ finding out who they are? I'm guessing if he's got the idea of taking a mortgage out into his head then he's at least better off speaking to lenders willing to hear him out with his straight legit story even if the rates they charge are bound to be far higher.

These specialist lenders need to be approached via a broker.

Your brother should engage a broker, outline his situation, and find out what can legally be done.