Help - new online SA302 only showing Taxable Profit, not Net Profit...

amnblog

Lenders use the 'income from self employment figure'.

Hence, when managing cases I want to see the SA302s and do not rely on borrower's 'stated' profit (many borrowers quote sale revenue when you ask them about their self employed income and don't even register profit as a factor).

You may consider that capital expenditure does not impact your profit but you have claimed an allowance for it against your tax bill.

Some may agree with your point of view, lenders do not.

You have the option of not claiming CE and increasing your income from self employment and therefore your lending.

We would all welcome the extra tax revenue in current times.

Perhaps it is unfair, many things are in our market.

T_Diddly

minimike2 wrote: »

Some of the tax practices you describe are what I often refer to as "wanting to have your cake AND eat it" when it comes to minimising tax, but still wanting to be able to have borrowing power. Not meaning any offence, but you can't have it all ways. A common theme I have seen with the self employed for, well, ever.
Hope this helps.

Yeah, I completely understand that and to be honest I agree with what you and amnblog have said. If I was a lender I would be of the same opinion.


The main reason this is bothering me so much is that in 3 out of 3 cases (London and Country, Nationwide, and the in-house mortgage broker at the estate agent we visited) I was careful to ask which figure they would use, and was told in all 3 cases the wrong one!

My expectation from the beginning was that taxable profit would be assessed. I only began to query things when the phrase Net Profit was repeatedly used by mortgage representatives.

To each of the representatives I spoke to, I explained that the difference between my figures was capital allowances, and all 3 'confirmed' that it was Net Profit they wanted, before capital allowances were taken off.

Since looking at my SA302s and finding out that they state the taxable profit I've got back in touch with all 3 people. 2 of them have since come back with lower offers and the 3rd I'm still waiting to hear from. So far no apologies for the incorrect advice they gave, including 2 incorrect decisions in principle.

Obviously in reality this hasn't really affected our housing prospects, it's just not ideal to be misled, have them get your hopes up, start viewing properties and then find out you won't get suitable loans for them.

I would love to see a paragraph added to next years' First Time Buyers Guide warning that a worrying number of mortgage representatives don't seem to understand the specific meaning of the Net Profit and Capital Allowances for the self-employed. Anyone in a similar situation may need to go against the advice of the 'experts' they're speaking to and provide different income figures to get accurate quotations. Hopefully that will spare some other people a few weeks wasted time and emotional turmoil.

And from a look online, it's not just members of staff who have the wrong idea. I've just checked the Nationwide online Mortgage Affordability Calculator, and once you've selected "self-employed (sole trader)" it pops up the question "What's your net profit, before tax, for the latest period?"

So I guess whoever designed that web form also didn't know the terms used in a self-employment tax return. If they were using the term 'net profit' in a casual sense rather than a technical term referring to box 21 of a tax return labelled Net Profit, then you would at least hope for one of those little clarification messages that pop up when you hover your mouse over the question mark symbol.

ACG

I think I would be just as concerned that 2 brokers deemed it ok to obtain a decision in principle without having your SA302s.

amnblog

The difference between your 'net profit' and self employed income is a function of tax laws which I would not expect either mortgage brokers nor lenders staff to understand in depth.

(Both may have been trained to a basic level of understanding. Those of us who are self employed have further knowledge through experience)

It is very rare that I see sole trader accounts where capital allowances have made a major difference.

Each broker has their own way of doing things. As ACG says, I would not expect to give you a definitive answer on affordability until I have seen the income proof, credit file, and bank statements.

Deanne_S

My husband and I are in a similar situation. We are wanting to move home to a larger property where we can efficiently run our business from and live.
We sought guidance and advice from two separate mortgage brokers, gave them all required information (2 years of accounts as a partnership, tax overviews and SA302 forms) and secured one mortgage offer in principle, found the desired property to purchase and have had an offer excepted.
The mortgage company got as far as booking a valuation on said property and then informed us they weren't willing to lend us the amount we required as they were now going on our taxable net profit figure form SA302 forms.
Our mortgage broker had declared the net profit figure from accounts etc and the mortgage company had accepted this figure once they received all documentation for proof of income and processed the application without any further queries on that figure or any others. Then changed their mind...
The mortgage company we had agreed an offer in principle with are now only willing to take the taxable profit figure from SA302 forms after capital allowances and depreciation etc. They will not consider otherwise. Despite having a statement from our accountant explaining the difference between the figures and producing a projection of income for this year.
It really has lead us into a false sense of security and have no way of finding the extra money to make up the difference so we are able to go through with the purchase of the property we have agreed an offer on.
We have relentlessly been enquiring to as many mortgage lenders/providers to get one to 100% confirm what figure they require to base their lending on and none so far can give a definite answer.
Our only other option thus far is to wait until the end of this financial year when we have another set of official accounts where we ask our accountant to not apply any capital allowances to. Therefore making our net profit figure the same as our taxable profit figure on SA302 form and hoping we can increase borrowing capability based on that one year of accounts.
Inevitability meaning we may lose the purchase of the property we have set our hearts on and also having to pay the tax man a sizeable amount by next January.