Self-employed and CIS contractors: the income lenders will actually accept

The single biggest mistake self-employed borrowers make is applying to a lender that calculates their income the wrong way. The same person can borrow £80,000 more from one lender than another, purely because of how they read the accounts, the CIS vouchers, or the salary and dividend split.

Here is what each type of self-employed income is and which lenders use which figure.

Sole traders

Most lenders take the average of the last two years' net profit from your SA302s and tax year overviews. Some use one year if your income is rising. The trap is a falling second year, which drags the average down even if year one was strong.

CIS contractors

This is where the big gains are. Several lenders assess CIS contractors on gross contract value from the CIS vouchers, not the net profit after expenses. A contractor earning £52,000 gross might show £34,000 on self-employed accounts after van, fuel and materials, but the lender using gross sees the full £52,000. On a 4.5x multiple that is £81,000 more borrowing.

We know which lenders do this and which do not. Applying to the wrong one is the difference between a mortgage and a rejection.

Limited company directors

Most high-street lenders assess on salary plus dividends. If you take £12,000 salary and £30,000 dividends, they use £42,000. But several building societies assess on salary plus dividends plus your share of net profit, including retained profit. A director on £12,000 salary with £60,000 of net profit can be assessed on £72,000, not £42,000.

That difference, on a 4.5x multiple, is £135,000 of extra borrowing. It is the most common reason a self-employed director is told 'no' by a high-street bank and 'yes' by a building society.

The retained profit question

Retained profit is profit left in the company after tax. Some lenders count it, some do not, and some count it only if you can show you will extract it. The structure of how you pay yourself changes your borrowing, and it can be worth adjusting a year before you apply.

What we do

We look at your SA302s, CIS vouchers and company accounts, match you to the lender that uses the most favourable figure, and model the ceiling before you apply. If restructuring your salary would add £50,000 to your borrowing, we tell you a year out, not on the day you get declined.