SA302 Profit Query

black_box

Hi all,

I just have a query about a section of my tax return.

1. )I'm a cameraman, and spent a lot of money on equipment last year (13/14). I put this all through as business expenses, when much of it should actually have gone down in the Annual Investment Allowance section. Not to worry - I believe I can go back in and correct this within twelve months, and as far as I'm aware it doesn't alter my tax liability, as both business expenditure and AIA reduce my taxable profit in the same way.

2.) The reason this has come to light is because I'm about to apply for a mortgage (to buy out the rest of my shared ownership property) and need to make sure my declared net profit is as big as it can be on the SA302 that the tax office will issue.

The thing I don't know is if the net profit that will show on my SA302 is the amount BEFORE Annual Investment Allowance or AFTER that. I'm really hoping that it's before, otherwise I'm !!!!!!ed for my mortgage, since I spent so much on equipment!

Or, does the SA302 show BOTH Net Profit and Taxable Profit, and I'll have to try and argue the point with the lender?!

Thanks in advance.

laura_louise

I had a similar problem, I had to wait til I had a really good year (this past year) then apply, even then in my case they took an average of the two years which brought it down a bit.

cns06

Your SA302 will show the following:


Payment from employment
Interest
Dividends


It will total all that up as "Total Income".


Net profits / gross etc wont even be shown.


There will then be a breakdown of personal allowance and a breakdown of divs but the bit they are interested in is the Total Income box.


If you are LTD then some lenders may ask for the accounts, although from my investigations they will probably just want 2 or 3 years SA302 to start with and bank statements / LTD accounts / accountants letters are sometimes requested depending on the lender.

black_box

Well, my total income is fine. But once I've taken off all the things I (legitimately) claim for, it doesn't look good to a lender. Surely the SA302 shows the total Net Profit after deductions, no? That's what I'd been told. Are you saying that the SA302 doesn't show those figures at all cns06?

anselld

SA302 shows only "Profit from self-employement" which is after AIA deductions.

Dave_the_Ginger_Cat

You can't have it both ways I'm afraid, keeping taxes low and lending high is not possible


If you choose to use these allowances in the way you've described (and I'm offering no comment on that part - I'm a lender not a tax specialist), then your income for lending will be classed as the net value, profit from self employment.


If you suggest to your lender that you've understated your income to HMRC, in my view that will push you towards the no pile. Overstatement (or indeed understatement) of any financial value looks very poor in a lenders' eyes, and won't fare well.


If you do need to file a correction, now might be the time to do it.

black_box

I hear you Dave.

Yes, my plan would be to make my amendment now, then apply for a mortgage in about 3 months. I presume there would be no record of my amendment/correction on the SA302, ie. it wouldn't state first the previous figures and then what they'd been corrected to - only the latest figures?

My point is just to try to understand what the SA302 shows that a lender will look at. Looking at an example online I see that it shows Total Income on which tax is due, then a breakdown of what tax is due. No mention of deductions. Is that because the Total Income... is the total arrived at on the self assessment form post deductions already?

Makes me think - for this new year 14/15 - why don't I just omit my deductions from my self assessment, do my mortgage application, then file a correction with my deductions... I'm sure that would trigger some kind of audit, but if it was all legitimate?! (am ready to be shot down here...!)

anselld

For the capital items you could claim writing down allowance rather than AIA. That way the tax deduction is spread over a number of years. You will still get the tax benefit eventually but your profits will look higher in the short term.

cns06

I think there is some confusion here.
Have you ever had an SA302? It sounds like not?


In general (there are always exceptions) your company profits are not directly related to your mortgage application.

The banks are (again in general) more interested in what *income* you have. Hence they now request SA302.


The main issue comes is when you take a salary which then puts the company in poor standing. I presume you are not doing this.


Divs only come from profits.


So the bank may want to see your accounts but its just to confirm you are not drawing a huge salary as PAYE when the company cant afford it.


The issue you have is you have had an expensive year, so your profits are reduced. You say your income is fine, so that's the main part. The bank are not that interested in profits so long as there is consideration for tax, PAYE and what not - divs may not apply in your case.


I hope that all makes sense. Also most lenders will want 2 years (some 3) SA302s.


The other option may be that you are not a company, in which case I cant fully comment.


My advice would be to speak to a decent accountant before you go about making any revisions.

Mortgage_Mark_2

cns06 wrote: »

I think there is some confusion here.
Have you ever had an SA302? It sounds like not?


In general (there are always exceptions) your company profits are not directly related to your mortgage application.

The banks are (again in general) more interested in what *income* you have. Hence they now request SA302.


The main issue comes is when you take a salary which then puts the company in poor standing. I presume you are not doing this.


Divs only come from profits.


So the bank may want to see your accounts but its just to confirm you are not drawing a huge salary as PAYE when the company cant afford it.


The issue you have is you have had an expensive year, so your profits are reduced. You say your income is fine, so that's the main part. The bank are not that interested in profits so long as there is consideration for tax, PAYE and what not - divs may not apply in your case.


I hope that all makes sense. Also most lenders will want 2 years (some 3) SA302s.


The other option may be that you are not a company, in which case I cant fully comment.


My advice would be to speak to a decent accountant before you go about making any revisions.

It sounds as if the OP is a sole trader, rather than Limited Company, so dividends shouldn't come into it, nor taking a salary higher than profit.

amnblog

The SA302 varies slightly depending on trading styles on the sources of income but only in the first "Income received (before tax taken off)" section.


Boxes in this section might label as:


'Profit from self-employment' (Sole Traders)
'Profit for Partnerships' (Partnership Income)
'Pay from all Employments' (Company Directors & PAYE Employed)
'UK Dividends' (Company Directors)
'Profit from UK Land and Property' (Rental Income)


Sections will be omitted depending on the tax payer.


The rest of the SA302 is the tax and NI calculations.


In short, only profit after all deductions (but before tax) is shown.


Your Accountant is the best source to handle or alter your accounting.

Your Broker is the best source to handle your mortgage application.


Never alter anything on your tax return for mortgage purposes without consulting both parties.