Best way to be paid as a company director in terms of mortgage application?

macfan21

My wife and I are both company directors and we are looking forward to potentially buy a house in 2-3 years when our credit ratings improve. One of the things I've been looking into is how best to take our salary from our company to give us the best chance of getting a mortgage. 

I'm not a huge fan of tax loopholes so currently we take 100% of our wage through PAYE rather than a basic rate of PAYE plus dividends. This costs us a bit extra in tax and national insurance but saves the company corporation tax etc.

What I would like advice on is whether it's easier to get a mortgage (in general) if 100% of our salary is paid as PAYE vs PAYE/Dividends, or does it generally not matter?

We would be looking at a mortgage in the region of 5 times our combined salary, with a 30% deposit (or thereabouts).

dunstonh

Best way to be paid as a company director in terms of mortgage application?

It doesn't really matter when you are the beneficial owners.

'm not a huge fan of tax loopholes so currently we take 100% of our wage through PAYE rather than a basic rate of PAYE plus dividends.

Its not a loophole.

We would be looking at a mortgage in the region of 5 times our combined salary, with a 30% deposit (or thereabouts).

It doesn't work that way as you can decide your own salary. 

Typically, they will request your turnover, gross profit, net profit, retained profit, salary and dividends.   Usually looked at on around a 3 year basis and any trends that may exist.  For example, if you are paying yourself more in salary or dividends but are eating your retained profits in doing so, then it is likely to be sustainable.

ACG

Most lenders now will take the figures off your latest 2 SA302s, where they are increasing, they would generally do an average of the last 2 years. 

It wont make any odds as to whether your income is PAYE & dividends or all PAYE. 

Grumpy_chap

As others said, lenders will "look through the veil" of the Ltd Co structure.

[Deleted User]

The complication of self employed directors who are paye only is that they tend to not do self assessment returns as their income is declared and taxed through payroll and they get a p60.

As you own more than 20% of the company then lenders are likely to want your sa302 so as long as you have that then no issues.  They will take salary and dividends at the same level as salary only so you are really only shooting yourself in the foot by being tax inefficient 

amnblog

JMA’s point above is interesting.

When Directors take PAYE (no dividends), and if there is no other income, Accountants will generally not submit self assessment returns for the directors/shareholders.

The self assessment returns generate tax calculations on the Accountants software, and, when submitted, tax year overviews fromHMRC

Most Lenders will want tax calculations and tax year overviews for the past two years to process a mortgage.

Therefore it is worth asking your Accountant to run and submit the self assessment returns even though they are not necessary for tax reporting purposes.