Self employed applicants
We’ve made changes to our self employed lending criteria to ensure our treatment of 2020/21 income is clear and straightforward. We have also outlined our position regarding receipt of Covid support such as SEISS grants, Bounce Back Loans, CBILS, and use of the Job Retention Scheme. Details below:
- Businesses must have been open for business/trading for the last 3 consecutive months (e.g. no Government Covid support such as SEISS grants or use of Job Retention Scheme during this period) for the income to be considered for affordability.*
- Self employed income must be keyed net of any SEISS grants received in 2020/21 tax year (SEISS grants 1 to 3 to be deducted where claimed).
- We require evidence of SEISS grants claimed/not claimed on every application apart from the following exceptions.**
- Directors of a limited company
- Where trading profit exceeded £50,000 in 2018/19 (unless average profits below £50,000 for 3-year period ending 2018/19)
- Where non-trading income exceeds trading profits (for example employment income or pension)
- Profit from land and property as this is not classed as trading profit.
- Latest year’s income evidence must be for the 2020/21 tax year on all cases, except for Directors of a Limited Company.
- We will accept self employed income evidence with a latest trading year end date up to 15 months before application for Directors of a Limited Company.
- Where self employed income has reduced by more than 10% in the latest year (after deduction of SEISS grants, where applicable), they will be referred to underwriting for manual assessment.***
*If an applicant has taken SEISS grants or used the Job Retention Scheme in the last 3 months but the self employed income is not required for affordability, the application is acceptable. Self employment details should still be captured with income keyed as £0.
**Evidence of SEISS grant claim history can be obtained via the following link. This information should be uploaded alongside the income verification on the same case requirement.
***Underwriter will require the latest 3 months business bank statements. If Bounce Back Loans or CBILS are evident underwriters will consider the ongoing cost to the business as part of their assessment.
The income we will use for affordability is as follows:
- Net profit for Sole Traders (after deduction of SEISS grants)
- Share of net profit for Partnerships (after deduction of SEISS grants)
- Salary & dividends for Directors of Limited companies
We require 2 years income documentation for self employed applicants.
Where 2 years income has not been captured for affordability cases will automatically be declined.
Affordability for self employed applicants is calculated as follows:
- Average of last 2 years where income has increased in latest year (after deduction of SEISS grants where applicable).
- Latest year where income has decreased in latest year (after deduction of SEISS grants where applicable).
Where self employed income has been captured the maximum loan to income will be 4.49 times income and the maximum loan to value will be 90%.
If the applicant has been self employed for less than 2 years, please enter '0' into the income fields.
If any of the following criteria apply, the client must be keyed as self employed.
- Where the applicant has a shareholding of 25% or more
- If joint application and applicants have a collective shareholding of 25% or more, then both applicants are to be treated as self employed (both applicants need to hold a % share).
- A sub-contractor who derives income from more than one contract
- An applicant has a partnership interest in a business, i.e. income is not PAYE, irrespective of the percentage shareholding
- An applicant owns a franchise
- An applicant employed by a Private Limited Company (LTD) or Limited Liability Partnership (LLP) who receives a salary (PAYE) and dividends as part of their remuneration package and / or Net Profits
For full information on the different types of income accepted for self employed applicants please see income section.
Acceptable income verification documentation
We require the latest year’s income evidence to be for the 2020/21 tax year on all cases except for Directors of a Limited Company with a shareholding ≥25%, or in receipt of dividends as part of their remuneration package. For Directors of a Limited Company where the trading year differs from the tax year, we will accept income evidence with a latest trading year end date up to 15 months before the date of the application.
Tax Calculations and Corresponding Tax Year Overviews
For sole traders and partnerships we will always request the latest 2 years tax calculations with corresponding tax year overviews as the preferred method of income verification (latest year must be 2020/21 tax year). We will not accept them for Limited Companies as they do not show if the dividends are covered by the net profit after corporation tax and will therefore require an accountant's reference instead (further details under Accountant's Reference below).
TSB accept Tax Calculations in the following formats:
- HMRC Online Tax Calculations
- Tax Calculations produced using commercial software
All versions of Tax Calculations and Tax Year Overviews must contain:
- All pages of the documents
- Applicant’s name (surname and initial)
- The unique Tax Reference Number
- The tax year
In addition to the above validation requirements, the following information must also be contained in the relevant document:
- SA302's: must be on headed paper
- HMRC Online Tax Calculation: must contain the HMRC logo and show the status bar confirming 100% complete
- Tax Year Overview: must contain the HMRC logo, the amount of tax due and the statement - "This is a copy of the information held on your official online self-assessment tax account with the HMRC" (for online versions only).
This is the required method of verification for Limited Company Directors. The reference must be fully completed and must be signed and dated by a suitably qualified Accountant, and must also have either a practice stamp, or be accompanied by a sheet of the company’s headed paper. If dividends exceed their share of net profit, then affordability will be based on the lower figure (director’s salary and share of net profit) and will be referred to underwriting for manual assessment. If the income for the latest year has reduced or is projected to reduce in the current year, we will need the accountant to provide a projection so sustainability of income to support lending can be considered.