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FOR THE USE OF MORTGAGE INTERMEDIARIES & OTHER PROFESSIONALS ONLY

FOR THE USE OF MORTGAGE INTERMEDIARIES & OTHER PROFESSIONALS ONLY

Self employed applicants

We’ve made changes to our self employed lending criteria to ensure our treatment of self employed income is clear and straightforward. Details below:

  • Latest year’s income evidence must be no older than 18 months on all cases.
  • Applicants must have been trading for at least 2 years and provide 2 years finalised figures to evidence income (for limited company director with more than 25% shareholding we will use business year figures, not the tax year).
  • Affordability is based on average income over the last 2 years if the latest year has increased, or the latest year if average income has decreased.

Change to a Company Situation

When a company situation changes e.g. sole trader to partnership, partnership to limited company or partnership to sole trader etc. as long as the applicant remains in the same business, then it is acceptable to key as continuous employment. The original start date must be entered onto Mortgage Pro and not the date the company changed status. Where the ownership structure of the business has changed, the latest two years finalised figures will be required.

Where the customer has gone from a Sole Trader to LTD company:

  • You will need to select the customer as 'LTD company'
  • Key the customers salary and dividends in the relevant fields for the relevant years
  • For previous 'Sole Trader' years, key the 'Net Profit' into the 'Salary' field

The income we will use for affordability is as follows:

  • Net profit for Sole Traders
  • Share of net profit for Partnerships
  • 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
  • Latest year where income has decreased in latest year 

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 customer 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 dated within the last 18 months on all cases. 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 18 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 (We require the latest year’s income evidence to be dated within the last 18 months). 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:

  • SA302's
  • 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).

Accountant's Reference

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.