Self-Employed Mortgage IR35
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IR35: Contractors demand tax and employment law alignment to protect ‘zero-rights’ workers

The government is again facing calls to amend its IR35 tax-avoidance legislation as concerns mount about its potential to be misused by employers to cuts costs by hiring contractors to effectively work as “zero-rights” employees.

Similar concerns were raised several months ago by a 200-strong group of MPs, and now tens of hundreds of contractors have also voiced similar worries in a poll conducted by IR35 compliance consultancy Qdos.

Two-thirds (65%) of the 1,846 contractors that took part in the poll said they are engaging with their clients on an inside-IR35 basis, which means they are considered to be an employee from a taxation perspective, based on the work they do and how it is performed.

This means they will be expected to be taxed in the same way as a permanent employee of the company, from an income tax and national insurance perspective, but they are not eligible to receive the same workplace benefits as an employee would.

Contracting market stakeholders have repeatedly argued that this could lead to employers using the IR35 legislation to build out a workforce that is comprised of contractors to whom they have no duty of care to provide workplace benefits.

This is particularly so given that the way the IR35 legislation works in the public and private sectors has been revised in April 2017 and April 2021, respectively, so that organisations are now responsible for determining whether the engagements they have with contractors should be classified as inside or outside IR35.

Before these changes were introduced, contractors were responsible for determining for themselves whether their working arrangements fell in or out of scope of the IR35 rules, raising concerns that employers may use their new powers to deliberately mis-classify their contractors as inside-IR35 to cut costs.

Because of the perceived risk of zero-rights employment, 82% of respondents to the Qdos poll said they are now calling on the government to tweak the IR35 legislation so that those determined by their clients to be working inside IR35 will receive the same workplace benefits as permanent employees.

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“The government needs to put an end to zero-rights employment once and for all,” said Qdos CEO Seb Maley. “It was already an issue, but the introduction of IR35 reform has exacerbated the situation.

“Thousands of contractors are now working as zero-rights employees – often as a result of needlessly risk-averse and sometimes non-compliant IR35 decisions carried out by businesses in response to the reform.

“Contractors working inside IR35 are effectively taxed as employees, but don’t receive any employment rights in return. It is illogical, unjust and must be eradicated.”

The 2017 gig economy review by Matthew Taylor, former interim director of labour market enforcement, raised this point and called on the government to take action to ensure the laws on tax and employment are aligned to ensure contractors that pay the same tax as employees receive the same workplace benefits.

Maley added: “The solution is to align employment rights with tax status, so that contractors taxed as employees get holiday pay, get paid sick leave, along with maternity and paternity privileges.

“The government promised to look into this some time ago, but it should have been done before the IR35 reform was enforced.

“It is astonishing that Westminster still has its head buried in the sand, showing how unsupportive it is of the independent workforce, which is arguably one of the UK’s most valuable economic assets.”

By Caroline Donnelly

Source: Computer Weekly

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IR35: Britons warned of tax ‘minefield’ with new changes – how to check status

IR35, formally known as off-payroll working rules, are a tool used by HMRC to check whether a contractor is genuine. Some instances will arise where contractors are being “disguised” as employees for tax purposes, and thus IR35 is in place to ensure everyone pays their fair share. While the changes were first due to be introduced in April 2020, they were delayed by a year as a result of the COVID-19 crisis.

Despite this delay, many Britons are still confused about who is now affected and how.

Businesses, contractors and the self-employed have all posed questions about IR35 matters.

To gain further insight, Express.co.uk spoke to Andrew Oury, tax expert at partner at Oury Clark.

He said: “The changes in the IR35 rules brought about in recent years and extended to the private sector in April have not been universally well-received.

“With responsibility for setting IR35 status – and therefore liability – shifting, many have raised concerns about the potential for huge tax bills in the event the client makes the wrong decision.

“Recognising if IR35 applies will come down to analysing your relationship.

“If your relationship with your customers looks like employee and employer for income tax purposes, then IR35 applies.

“If the relationship looks like a self-employed contractor and a customer, then IR35 does not apply.”

However, Mr Oury urged all Britons to take particular caution when it comes to IR35 decision making.

This is because each contract will be different, and therefore a separate IR35 decision will need to be made on each one.

This, he said, has the potential to create a “minefield” of decision making when it comes to IR35.

IR35 rules will not apply in a number of circumstances, and these will be important to check.

If an organisation is not a UK limited company, for example, and is not supplying services to a client who is a limited company, IR35 will not apply.

If those doing the work concerned do not own more than five percent of the limited company, and the worker is not employed by the company concerned – similarly IR35 will not apply.

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However, there will be many circumstances where IR35 does have to be taken into consideration.

This burden now lies with the client who must determine themselves if IR35 applies to the situation.

The matter is complicated by the fact there is no single test to determine employment status for tax purposes.

As a result, then, a number of factors will have to be considered when it comes to decision making.

However, in an attempt to reduce this level of uncertainty, Oury Clark has developed an infographic flow chart which allows Britons to answer specific questions about their circumstances.

It is hoped this will provide further clarity to those who are currently dealing with IR35.

In a similar way, HMRC has developed a tool known as Check Employment Status for Tax (CEST).

But it is worth noting some experts have criticised the tool for failing to provide a response in some circumstances.

Responding to this recently, HMRC told Express.co.uk: “In the vast majority of cases, the free CEST tool will determine the worker’s employment status for tax and NICs. In the minority of more finely balanced cases, CEST will give an undetermined outcome.

“To reach a view in all cases HMRC would need to add more complex questions, increasing the burden of using the tool for the majority of users. HMRC has recently launched an enhanced customer support offering where users can speak to an online adviser for help whilst using the tool.”

By REBEKAH EVANS

Source: Express

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Can you get a mortgage if you’re self-employed?

With some high street banks turning away self-employed mortgage applications from those who have taken out government Covid grants during the pandemic, and a recent report from Shawbrook Bank revealing that 35% of borrowers are unsure if they will get a mortgage due to being self-employed, many consumers may feel that being self-employed is a barrier to homeownership.

In fact, the research from Shawbrook Bank found that although 23% of borrowers were unsure if they could get a mortgage if they were self-employed, while a further 12% believed that being self-employed would result in a mortgage rejection. Meanwhile, some self-employed applicants have found that high street banks have turned down their mortgage applications due to taking out the government’s self-employment income support scheme (SEISS) grant.

Although being self-employed may make it harder than an employee to get accepted for a mortgage, being self-employed is not a complete barrier to homeownership. Here are some ways those who are self-employed can help to ensure that their mortgage application is accepted.

Have the right financial records

A mortgage lender is most interested in whether the borrower can make the repayments needed on the mortgage. While this is usually easier for employees to prove – they just need to show their wage slip – for those who are self-employed this can be harder to prove, especially as their income may vary month-to-month. As such, those who are self-employed will need to show a larger number of financial documents. For those who are self-employed, this means providing various documentation to help evidence your financial position. This includes two or more years of certified accounts, tax calculations and tax year overview, bank statements, proof of address, and your last mortgage statement (if you’re remortgaging). Some lenders may ask for further documentation later down the line, for example, if you’re a contractor, lenders may review past and future contracts. Either way, getting everything in order well in advance will help smooth the process.”

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Be in a strong financial position

Along with wanting to ensure that borrowers have the income needed to meet repayments, mortgage lenders also want to make sure that the mortgage is affordable given the applicant’s outgoings. As such, getting finances in order before making an application will help to improve chances of getting accepted for the mortgage. For example, paying off outstanding debts, such as credit cards or personal loans, can help to improve the borrower’s attractiveness to mortgage lenders. As well as this, improving credit scores can also help to boost the chances of the application being accepted. Mortgage applicants should consider checking their credit score online – which they can do for free here – and work towards improving their score if needed. “A good credit history will stand you in good stead when it comes to dealing with lenders,” revealed Murphy. “Keeping up with credit card payments, paying bills on time, or closing any unused bank accounts in the run up to your application will help with this. If you can show you have a good credit score, you’ll be in a great position for getting a mortgage.” For tips on improving credit scores read our guide on how to improve your credit score.

Save for a large deposit

Rising house prices may make it harder to save for a deposit, but if possible, saving for a large deposit of 15% or more will help to increase the chances of the mortgage application being accepted, particularly for those who do not have a long history of financial records. Using a Lifetime ISA (LISA) can be a good way of boosting savings when saving towards the deposit for a first home as a 25% Government bonus is added to deposits each year, up to a maximum of £1,000 per year. Those considering a LISA should, however, be aware that the money saved must be used towards the deposit of a first home, or during retirement, and if withdrawals are made for any other reason a hefty penalty fee is charged. For more tips on saving towards a house deposit read our guide on savings for your first home.

Use a mortgage broker

Using a mortgage broker can help to improve chances of the application being accepted as they will not only be able to guide applicants through the process, including ensuring they have all the relevant documents needed, but will also be able to highlight deals that are more likely to accept applications from those who are self-employed.

By Derin Clark

Source: Money Facts

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Contractor mortgage broker Contractors UK IR35
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Halifax updates contractor policy to align with IR35 rules

Halifax has adjusted its affordability and income criteria for contractors who work on an employed basis to reflect changes to government tax legislation under IR35.

IR35 rule changes came in this April to ensure contractors paid the correct tax if the work they carried out for a company resembled employment.

Under IR35, a person can be deemed as employed based on conditions including how easily they can be substituted, the provision of their equipment and how exposed the worker is to financial risk.

Halifax’s amendments are effective from 9 July and mean contractors can be treated as either employed or self-employed for income verification depending on their circumstances.

The general definition of a contractor includes those whose income comes from a contract, they pay their own tax, or they are employed via an umbrella company that deducts their tax, or they are workers who are essentially employed but are on a fixed or short-term contract.

Borrowers will be treated as self-employed by Halifax if they pay their own tax, they have more than one contract, or if they have set up a limited company which employs other contractors.

In this instance, income verification will remain in line with existing self-employed policy.

Halifax will deem clients as employed if tax is paid on their behalf by the company they work for or they are employed by an umbrella firm that deducts tax.

Borrowers will also be considered employed if they earn more than £500 a day or £75,000 per year. They are also classed as employed if they are IT contractors on any income, regardless of the tax structure or if they consider themselves to be self-employed.

This follows a recent ruling where an IT contractor working for Nationwide had to pay £74,523 in income tax and National Insurance Contributions after losing an appeal to be deemed self-employed.

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The only exemptions for those earning more than £500 a day, £75,000 a year or IT contractors will be borrowers with more than one contract or those who have set up a limited company that employs other contractors.

Customers will also be considered employed if they have 12 months or more continuous employment, with six months of the contract remaining. People who have two years of continuous services in the same type of employment will also be treated as employed, as per existing Halifax criteria.

Contractor income verification

Where a contractor is considered employed for income verification, this will need to be checked either with a copy of their latest contract and payslip, or bank statement if a payslip is not issued.

The income will be calculated based on a 46-week year.

The lowest figure of either the calculated gross value of the contract or income will be used for affordability.

Those who work on a fixed or short-term contract or through an agency where tax is deducted by the employer who is not an IR35 umbrella firm will have to show their latest payslip to evidence income or last three payslips if other income is being used.

Members of the construction industry must provide the last three months’ payslips and corresponding bank statements, and an average will be calculated.

There will be no changes to income verification for borrowers on a zero hours contract.

Updates will apply to full applications submitted from 9 July. Any decision in principle entered before this date then submitted as a full application after Friday will be subject to the new criteria.

Further advances submitted after this date will also be subject to the changes.

By Shekina Tuahene

Source: Mortgage Solutions

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Demand for IT contractors hits highest level since March 1998

The UK’s runaway demand for IT contractors smashed another record last month, soaring to 71.7 – its highest level since March 1998.

So not for 23 years has appetite for IT contractors been so sharp, although the peak in June represents only the fifth month in a row where the demand increased.

Unveiling these figures, the REC said the market was now “improving at the fastest pace we have ever seen,” but cautioned, “it is still an unpredictable time.”

‘Technology sector doing well’
Although the agency body was describing the labour market as a whole, the reading largely applies to the IT contractor market too where the buoyancy but also the pressures are similar.

For example, while IT is “doing well” as is most “skilled work”, it is “difficult to know what the picture will look like” very soon, because the furlough scheme is winding down.

Speaking before the figures but in a period covered by its Report on Jobs, the Recruitment & Employment’s Neil Carberry also said shortages were acute in IT, just as they were generally.

‘Slowing the recovery’
So acute that, against the backdrop of general candidate availability dropping to a 24-year low, technology was identified as one of four sectors requiring “more [government] support.”

“[It’s likely] needed to avoid slowing the recovery,” warned Mr Carberry, the REC’s CEO, pointing not just to IT, but also to Hospitality, Food and the IR35 reform-hit Driving sector.

“[The] HGV driver shortage [is] intensifying. [So in] summary, we see a labour market that is lumpy right now — with high and unmet demand in some sectors.”

He continued: “For the longer run, a tighter labour market and fast economic change is inevitable. So employers need to be thinking about their workforce strategy much more practically, and what their offer is — but not just on salary — also on terms, and the perm-temp decisions.”

‘In short supply’
Across the perm-temp IT space, the skills “in short supply” in June according to REC member agencies were BI, Development, IT, Digital and Technology.

Unique to the permanent technology staff market, the shortages were of Automation Testing, C#, Data, Media, Software Engineering and Technical Sales.

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Whereas specific to IT contractors, opportunities requiring CNC, Cyber, Scala and Java were the hardest for the agencies to place.

‘Agents working flat out’
Elsewhere in the June report, the confederation says both businesses and government should “take action” to “reskill and upskill”, amid recruiters currently “working flat out.”

Sounding definitely flat out, and exasperated at trying to raise an ‘Open for Work’ LinkedIn user, a tech boss posted: “Why is it OK for candidates to ignore messages and reach outs?

“I just don’t get it. You set your status as ‘Open to work’ which is a signal that invites people to contact you, and then you choose not to respond to messages. Not even a simple polite ‘thanks but no thanks.’”

‘Nine-stage interview’
But candidates sound frustrated too, especially if interviews turn into marathons. A software engineer said: “I pulled my name for consideration for a company I was interviewing with.

“This was a company I did the first three [interview] rounds with two weeks ago. [And] this was for a role I wanted. [But] I decided to pull my name for consideration, because they were [next planning on] working to schedule rounds FOUR to NINE of the interview process”.

A specialist in Enterprise Architecture, the consultant added: “For the types of jobs I’ve been looking for, the number of interviews has been getting higher and higher.

“Companies think they are building processes that ensure picking the right candidate. I don’t think that’s true. I think it’s due to fear of picking the wrong candidate.”

‘Baffled’
Not all of the interview stages are always face-to-face, however, as a Microsoft recruitment partner clearly forgot.

Taking to social media, the recruiter admitted: “A client just asked me to book second interviews and I was baffled! The candidates hadn’t even had their first interview.

“[But] then I remembered we had sent videos across as their first stage, using the client’s interview questions [and getting the candidates to answer them].”

Written by Simon Moore

Source: Contractor UK

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Self-employment crisis as a discrepancy between HMRC’s CEST & IR35 noted

HMRC has been questioned by one expert about its processes, as data appeared to reveal a “discrepancy” in its CEST employment tool and advertised IR35 jobs.

HMRC first introduced changes to IR35 back in April 2021, after a year of delays due to the pandemic. IR35 is legislation which is designed to identify contractors and businesses which are not currently paying the correct tax due to avoidance measures. As a result of the changes, medium to large businesses have now been required to alter their processes when it comes to tax.

It means these organisations are required to assess the contractors they employ, as well as independently setting their tax status.

The changes, however, were resisted by some who suggested this would create harder work for organisations, who may consequently become reluctant to imply contractors or freelancers.

For IR35, even before changes took place, Britons were advised by the Government to use what is known as the Check Employment Status for Tax (CEST) tool.

CEST enables individuals to find out if they, or a worker on a “specific engagement” should be classed as employed or self-employed for the purposes of tax.

However, experts have highlighted a potential issue which has arisen when looking at the latest data.

It has been suggested there is a “discrepancy” between usage of CEST and the number of contractor jobs which have been put forward as “outside IR35”.

Being outside IR35 means one is operating as a business where off-payroll working rules will not apply.

This means someone can pay themselves a salary and is responsible for their taxes – with HMRC viewing them as an employee for tax purposes.

Matt Fryer, Head of Legal Services at Brookson Legal, commented on the matter.

He said: “There is a huge discrepancy between the CEST usage data and the number of private sector contractor jobs being advertised as outside of IR35.

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“As demand for skilled labour begins to outstrip supply, hiring businesses that are unable to guarantee outside IR35 status for these contractors will struggle to recruit the talent they need for economic recovery.

“According to CEST data, 49 to 56 percent of all contractor roles clearly fall outside of IR35, with another 19 to 21 percent in a grey area the tool is unable to determine.”

Data from Jobfeed, however, Mr Fryer added, currently indicates only 26 percent of contractor roles are being advertised as outside IR35.

This was true as of the week commencing June 7, 2021.

It is feared, then, that the CEST tool is not wholly doing the job it is meant to be doing, and many are concerned about potential ramifications.

Mr Fryer went into further depth to provide clarity on the situation.

He added: “This is a worker’s market, with REC reporting on rapid rises in hiring and intent to hire for temporary roles, coupled with a shortage of skilled talent.

“As the economy picks up, businesses that require skilled contractors will need to clearly demonstrate they can provide roles outside of IR35 to beat the competition.”

Mr Fryer concluded, however, by posing why more of these roles are not currently being advertised.

One potential answer to that question, he states, may lie in the idea that many businesses do not have faith in solutions they have put in place for meeting the deadline.

But in this case, Mr Fryer stated, hirers who have planned ahead and in detail, are likely to “reap the rewards” of their efforts.

An HMRC spokesperson told Express.co.uk: “In the vast majority of cases, the free CEST tool will determine the worker’s employment status for tax and NICs. In the minority of more finely balanced cases, CEST will give an undetermined outcome.”

“To reach a view in all cases HMRC would need to add more complex questions, increasing the burden of using the tool for the majority of users.”

“HMRC has recently launched an enhanced customer support offering where users can speak to an online adviser for help whilst using the tool.”

By REBEKAH EVANS

Source: Express

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Contractors, here’s when the true impact of a new IR35 will become clear

At this 11-week point since private sector IR35 reform applied, there are quite a few studies, surveys and snapshots doing the rounds, all trying to evaluate the impact of the off-payroll rules with particular focus on how many are inside IR35, how many are outside and how many have been forced into umbrellas, writes Kate Cottrell of status advisory Bauer & Cottrell.  

Studies, surveys and snapshots (cont.)

We are less than two months in and to use a phrase that is a favourite of HMRCs “we have heard anecdotal comments, but we have no evidence.”

At this still early stage, the findings of the studies are limited, as to who took the time to complete them, and the nature of the business asking the questions (are they a contractor membership body, an accountancy practice specialising in contractors or an agency with the same specialisms?)

I think you could ask both contractors and every provider of services to contractors what they are seeing and without doubt, there will be horror stories — those out of contract; those forced to contract in a particular way, those that have been treated well and fairly, those in no man’s land still awaiting the result of their status appeal. And even sadly, those who are still unaware of the whole thing!

These studies, surveys and snapshots will undoubtedly assist those that undertook them to make their case to government and it will be interesting to see the picture when we are further down the line.  

The use of tools

At present, there are some tools to decide IR35 status which will have a very accurate picture of the results of the reform thus far.  However, many I have seen do not do a proper job at all — with the worst testing tools just giving indications of the likely status. These indicators are of no use to anyone. 

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CEST

As we know all too well, HMRC regularly quotes the millionsof times CEST has been used and, as with any statistics of this type, the department paints the picture that such numbers mean that the tool is ‘really successful.’ 

In reality, these are just numbers with no account being taken of folk using CEST over and over again until they achieve the right result — or the most worrying aspect of the result that gives the answer “unable to determine”.

Even non-users know that CEST does have its limitations and arguably, it is not fit-for-purpose. There is currently no requirement to even identify the parties to the engagement!

HMRC have said they will stand by the results of CEST providing that the information input is accurate and herein lies an aspect of CEST, that needs great care.  Unless you are 100% certain that it has been completed accurately, then reliance upon its results is not recommended.    

When can we expect anecdotes to become facts?

HMRC will have a very clear picture of the impact of the rules during and after the end of the tax year.

  1. Information on those inside IR35 is being returned to HMRC via RTI – ‘tick the box please.’
  2. Information on any contractor working via an agency and being paid gross (outside IR35) is also returned to HMRC by way of the Intermediaries Reporting requirements.
  3. Self-Assessment returns will pick up outside IR35 contractors that do not fall within 1 or 2 above.

These 3 channels will provide the bulk of IR35 reform facts to HMRC.

How will the facts be viewed?

I hope we have moved some way since HMRC claimed (based on very dubious research) that the reform was a resounding success in the public sector.

Yes, the Revenue will have an awful lot of data and we can only hope that this will be presented in a fair way, rather than like the past when it was presented to support the introduction of the reform – à la ‘we were right to do this – look how much tax and NIC we have collected.’

As always, the difficulties will arise if no account is taken of behaviours. Without this, the facts will belie the truth. HMRC will need to identify industry sectors and the stances taken by end-clients, especially the large ones. These include:

  • Blanket bans i.e. ‘no more PSCs’
  • Blanket Umbrella-only contractor usage.
  • Blanket Inside IR35 decisions i.e. ‘all PSCs are caught.’
  • Incorrect decisions, changed on appeal

If the contractor industry and the wider business community like UK PLC are to have any faith in the system HMRC /HMT must not just add up the totals and claim a resounding success — however tempting that might be for them. Instead, account should be taken of the effects of the Covid 19 pandemic on the new rules. Many businesses have behaved differently as a result. This includes many contractors who have been put out of business owing to lack of support from HM Treasury.

Everyone needs to carry on and continue to keep evaluating the impacts

It’s not a popular action to endorse but end-clients may need to return to their invariably commercial-led decisions to ban PSC contractors. All other intermediaries such as agencies and umbrellas may need to change tack on their operations. Contractors should understand the new rules and challenge unfair or poorly made decisions wherever possible. Finally let’s keep the studies, surveys and snapshots coming regularly, collecting the information that will turn anecdotes into reliable facts.

Written by Kate Cottrell

Source: Contractor UK

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Self-employed mortgages
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How to get a mortgage when self employed

Can the self-employed get a mortgage?

Yes, self-employed workers can apply for a mortgage in the usual way, with many lenders accepting self-employed income and some even specialising in self-employed mortgages. At one time, self-certification mortgages were available that allowed self-employed borrowers to declare their income without providing proof, but these were banned in 2014.

These days to get a mortgage when you’re self-employed, you’ll have to prove your income to lenders – which we’ll discuss in more detail below – but you may also need to make yourself a more attractive lending prospect than if you were employed. This means you’ll probably be expected to provide a more substantial deposit than may normally be required or if you’re remortgaging, you’ll need to own a large amount of equity already. A high credit rating will also mean you’re less risky in the eyes of lenders. If you’re not sure where you stand credit-wise, make sure to check your credit report in advance, and spend the time to improve your score if necessary.

It may also be worth utilising the services of a mortgage broker. They’ll know the lenders that are most likely to accept self-employed borrowers and will have links to specialist lenders too, not to mention access to deals that are not available direct from lenders to borrowers. This, together with knowledge of how to navigate the process, could make it much easier to secure that all-important mortgage deal as a self-employed borrower.

Is it harder to get a mortgage if self-employed?

Yes. Your income isn’t guaranteed, and although you’re required to prove how much you earn, it isn’t certain that your income will stay at that level during the term of the mortgage. As such, providers may be less willing to lend to you, and you may have to pass stricter affordability criteria – or jump through a few more hoops to prove your creditworthiness – as a result. This may seem unfair in some respects, but it’s designed to ensure that you can afford the mortgage; the days of self-certification saw many borrowers take on mortgages that were unaffordable, and since the Mortgage Market Review was implemented in 2014, lenders have tightened their lending criteria and have an obligation to lend responsibly.

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How many years of accounts do I need for a self-employed mortgage?

You’ll need at least two years of certified accounts in order to comfortably apply for a self-employed mortgage, and preferably three years or more if you want access to the best deals. Ideally, these accounts should have been prepared by a qualified and chartered accountant to prove your reliability. If you’ve only got accounts for one year or less, it may be more of a challenge to prove that you can afford a mortgage. A mortgage broker can be particularly helpful in this scenario to find a mortgage deal for you. You can improve your chances if you can show that you’ve got regular work and/or evidence of future commissions to show how you’re planning to maintain your income.

How to prove self-employed income for a mortgage

You’ll need to provide a lot more evidence of what you earn if you’re self-employed than if you had an employer, simply because you don’t have anyone else to back up your claim. You’ll need to show SA302 statements – which provide evidence of your earnings and tax paid after submitting your self-assessment tax return – or tax year overviews for the preceding two or three years, which can be obtained from HMRC. Some lenders will require you to see your full accounts too.

If you’re a contractor you’ll also need to show evidence of current and any upcoming contracts (which lenders may use to estimate your annual income), and if you’re a company director, you’ll be expected to show proof of dividend payments or retained profits. No matter which category of self-employment you fall under, lenders will typically focus on average profit over the preceding two years to determine your mortgage eligibility, though they all have different methods. Income multiples and/or assessments of affordability will then be used to determine how much you’ll be able to borrow.

Yet it isn’t only evidence of your income that you’ll need to provide. As is the case for all borrowers, lenders will require several other documents too, including your passport and driving licence, council tax bill and recent utility bills to verify your identity, as well as six months’ worth of bank statements. The latter will be scrutinised, and you may be asked to provide more detail in certain areas – particularly around other borrowing commitments, childcare costs, household bills and other outgoings – to prove affordability.

Are self-employed mortgages more expensive?

Not necessarily. As with all mortgages, the rate that you’re offered will depend on your level of deposit/equity, your credit score and your income. As long as the mortgage lender is provided with enough evidence for the latter, there’s no reason that you can’t be offered the same deal as someone in a comparative salaried position. However, that’s not to say that it won’t be a challenge, and some people may find it difficult to be accepted by mainstream banks. In this case, they may have to approach specialist lenders where rates can be higher. However, to find the best deals it all comes down to comparing the options and boosting your chances of getting approved for a mortgage.
You can also speak to a broker to access their knowledge of those lenders most likely to accept you and to find the best deals.

By Leanne Macardle

Source: MoneyFacts

For more information on getting a contractor mortgage click here.

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What is a contractor mortgage broker and do I need one?

A contractor mortgage broker is a financial adviser who specialises in offering self-employed individuals and contractors advice on securing a mortgage.

Choosing a contractor mortgage is a complicated process, and knowing what rate, term, lender, features and insurance to get are all time-consuming and complex matters.

Contractor mortgage brokers can therefore provide you with an invaluable service – navigating this arduous journey on your behalf and presenting you with only the best options to suit your situation.

Why use a contractor mortgage broker?

You may still be wondering why you really need a contractor mortgage broker and are tempted to cut out the middleman and go direct.

But if you aren’t sure on whether you need a contractor mortgage broker or not, here are just a few of the reasons why you should consider using one.

• Experience – contractor mortgage brokers will have proven experience in securing mortgages for contractors. Having dealt with a plethora of contractors means they will understand your needs and are therefore more likely to be able to offer you better products and services. Going direct with banks and lenders that don’t understand your situation could mean you end up with a loan that doesn’t reflect your true borrowing potential; with an interest rate that penalises you just for being a contractor.

• Specialist knowledge – with experience comes knowledge; your contractor mortgage broker will have a specialist knowledge of contractors. It’s likely that they will have worked with contractors who would otherwise struggle to get a mortgage, for example those with gaps in their contracts, adverse credit or those needing to consolidate debt. It’s also likely that they will have worked with those who are paid outside the norm such as doctors, sole traders, partnerships and limited companies. They will not be phased when you present them with your situation and will know exactly how to advise you.

• Protection – when you receive mortgage advice your contractor mortgage broker has a duty of care to you. They are required to recommend a suitable mortgage and should be able to justify why the chosen mortgage is suitable for you. If their advice turns out to be no good, you can complain and get compensated. You may not have as much legal recourse if you go directly to a high street mortgage lender.

To find out more about how we can assist you with your Contractor Mortgage please click here

What should I look for in a contractor mortgage broker?

If you have decided that you need a contractor mortgage broker, there are a few things to look out for when deciding who will help you on your journey to securing your home loan.

• Reliability – you will need to look for a contractor mortgage broker that will be there with you from your first phone call to the day you get your keys. Find out if you will be assigned a specialist consultant or case manager to be on hand with advice and support. This kind of service makes the process as easy as possible for you.

• Dedication – does the contractor mortgage broker you are considering work with a comprehensive range of high street lenders and building societies? You should ensure that your broker isn’t just choosing a lender because it’s the easiest route, or because they get a higher fee from them. You need to choose a broker that will go through all of their lenders to find the one that is right for you and your situation.

• Success rate – the industry average success rate for a contractor mortgage is 71%, therefore you should seek out a contractor mortgage broker with a success rate of at least this, if not more. It goes without saying that the higher the success rate the better as it proves their track record with those in a similar situation to you.

• Best fees – consider what fee the contractor mortgage broker is charging and what you are receiving for the fee. Do you only pay the fee if the broker secures your mortgage? Some will refund you the money if they do not get you a mortgage. If they aren’t charging a fee at all that’s not necessarily a good thing – it means they will be receiving a fee from the lender. They could be picking a lender based on how much money they can get from them, rather than what’s best for you, possibly resulting in higher rates or a decline for you. They might also not be a specialist who understands your needs, or they might not be willing to put the work in if your case is not straight forward.

• Customer service – is your contractor mortgage broker known for their impeccable customer service? Good customer service goes a long way in easing the stress of getting a home loan, and also in ensuring that you understand every step of the process. You can check out potential brokers on review sites like Feefo or Trustpilot to see what their reputation is like, or speak to other contractors on the ContractorUK forum to find out what experiences they may have had with them.

Final considerations

Getting a contractor mortgage can be a minefield without the assistance of a contractor mortgage broker to streamline the whole process for you.

Making the wrong choice about your contractor mortgage can cost you hundreds, even thousands of pounds, and it’s easy to get tripped up with all the mortgages awash with extra fees and charges.

So if the additional cost of using a broker is holding you back – keep in mind that paying their fee could actually save you a small fortune.

Not only this, but a contractor mortgage broker will ensure that your mortgage application is processed smoothly and efficiently, alleviating any unnecessary stress associated with moving home.

Source: Contractor UK

For more information on getting a contractor mortgage click here.

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Getting A Mortgage When You’re Self-Employed

There are more than five million self-employed people in the UK, according to the Office for National Statistics (ONS). Yet getting a mortgage when you work for yourself can be more complicated than if you’re an employee working for a company.

Here’s what you need to know.

Can I get a mortgage if I am self-employed? 

You can get a mortgage if you work for yourself. However, lenders prefer job stability and the predictability that comes from a reliable income.

If your income tends to fluctuate from month to month – as it often does if you’re self-employed – lenders may be more nervous about letting you borrow. Because of this, you’re likely to need to provide more evidence of your income to get accepted for a mortgage.

How to apply for a self-employed mortgage

If you’re applying for a self-employed mortgage, you will need the following documents to prove your income:

  • Two or more years of certified accounts
  • SA302 forms or a tax year review from HMRC for the past two to three years 
  • Evidence of upcoming contracts if you’re a contractor
  • Proof of dividend payments or retained profits if you’re a company director.

You’ll also need:

  • Bank statements for the past three to six months
  • Proof of ID, such as your passport or driving licence
  • Proof of address, such as a council tax or utility bill.

Do your accounts have to be from an accountant?

Especially if your financial affairs are complicated, most lenders will insist that your accounts have been complied by a chartered or certified accountant (which means they are part of a professional body).

In any case, using one can only boost chances of being accepted for a mortgage. 

Note however, that while many accountants will legally reduce your declared income so that you pay less tax, your accounts will show a smaller profit as a result, which could affect your affordability when it comes to a mortgage application.

To find out more about how we can assist you with your Contractor Mortgage please click here

How does affordability work?

The introduction of the Mortgage Market Review (MMR) back in 2014 meant that lenders must now comprehensively check whether you can afford a mortgage, both now and in the future too.

As part of this assessment they will “stress test” your finances to see whether you would still be able to afford your mortgage if interest rates were to increase (to 3% above what the lender’s mortgage deal reverts to).

To ensure you won’t be overstretching yourself, lenders will look at both your income and how you spend your money. 

Your bank statements will be examined to assess how much you spend on household bills, childcare costs and commuting. Lenders will also consider how much you spend on holidays, socialising and hobbies, as well as whether you have any debts to repay and how much these are. 

Do all lenders want the same?

Although lenders must all follow the same rules, they won’t all have the same criteria.

This means that where one lender might turn you down, another might accept your application. For this reason, it’s important to check eligibility criteria carefully before applying.

You may also want to seek help from a mortgage broker.

Should you use a broker? 

There’s no requirement to use a mortgage broker to help you with your mortgage search. But, especially when you are self-employed, it can help to ensure you’re matched with the most suitable lender and deal.

Brokers have inside knowledge of each lender’s criteria and preferences, which can ensure you don’t waste your time applying for a mortgage you have no chance of being accepted for. 

Brokers will also manage your application and arrange the necessary paperwork, which can make the process much easier.

Many brokers do not charge the customer a fee for their services, taking their commission from mortgage lenders instead. However, check they are independent and have access to the whole of the mortgage market rather than just a selected panel of lenders. 

How your self-employed mortgage will be assessed 

If you’re self-employed, your situation will generally fall into one of three categories, and this will affect how you’re assessed.

  • Sole traders – if you’re a sole trader, you will need to declare your income using self-assessment and have your tax calculated by HMRC. You’ll need to submit this on a SA302 form which lenders will use when calculating what you can borrow
  • Partnership – if you’re in business with someone else, lenders will look at your individual share what profit it makes
  • Limited company – as a director of a limited company, lenders will look at both your salary and dividend payments when it comes to affordability. But note that not all lenders will factor in profits to their calculations, should you choose to retain any

Is it gross or net income the lender looks at? 

If you’re a sole trader or freelancer, lenders will usually look at your net profit over the past two to three years. An average is then taken from those figures. 

For contractors, lenders may take an average of your income over the past few years, or your annualised day rate may be taken into account.

If you’re a limited company, lenders will look at your share of net profit or your salary and dividend payments. 

What if your business has suffered because of Covid-19? 

In the wake of the Covid-19 pandemic, many lenders have tightened their criteria even further.

As a result, you may be asked to provide details of your turnover for the past three months as well as historic accounts so that lenders can see exactly how your earnings have been affected. 

Applications are usually looked at on a case-by-case basis, and some lenders may be more lenient than others. Using a broker may help you to find a lender that is more likely to accept your application.

Are the same mortgages available to the self-employed? 

These days self-employed people can choose from the same mortgages as anyone else, so there’s no such thing as ‘self-employed mortgages’. 

Traditionally, however, ‘self-certification’ or ‘self-cert’ mortgages were available. These were specifically designed for those unable to provide proof of their regular income, making them a popular choice for the self-employed. 

The Financial Conduct Authority (FCA) banned self-cert mortgages in 2014 due to concerns borrowers were being approved for mortgages they couldn’t afford to repay. 

Tips to boost your chances being accepted

There are several steps you can take to increase your chances of getting accepted for a self-employed mortgage:

  • Save for a bigger deposit: As with any type of mortgage, the more you can save up for a deposit, the more likely you are to get accepted for a mortgage and secure the best interest rates
  • Check and improve your credit score: Before applying for a mortgage, check your credit score by using one of the fee-free services available online. Lenders use your credit score to determine how reliable you are as a borrower, so the better it is the more likely you are to get accepted
  • If your credit score is poor, take steps to improve it such as checking you’re on the electoral roll, paying bills on time, spacing out credit applications and correcting any mistakes on your credit report
  • Get your paperwork in order: It’s important to ensure your accounts are up to date and have ideally been prepared by a qualified accountant before you apply. Ideally, you’ll need at least two years’ worth of accounts. 

Frequently Asked Questions

Who counts as self-employed?

Generally, lenders will view you as self-employed if you own more than 20% to 25% of a business from which you earn your main income. You could be classed as a contractor, sole trader, or company director.

Is it harder to get a mortgage when you’re self-employed?

It can be. But providing you have sufficient proof of income, a good credit score and a large deposit, you should still have a good chance of getting accepted.  

Do the self-employed pay higher mortgage rates?

Not necessarily. So long as you can provide adequate proof of your income, you should have access to the same mortgage rates as everyone else. You’re more likely to secure the best rates if you have a good credit history and large deposit.

If you’re struggling to get accepted by a mainstream bank, however, you may have to apply with a specialist lender which may charge higher rates. 

What can I do if I don’t have two years of accounts?

You may find it harder to get a self-employed mortgage if you don’t have two years of accounts. But your application may still be considered by certain lenders, particularly if you can prove you have already received regular work or that you have regular work lined up in the future.

It’s worth speaking to a mortgage broker to see if they can advise on lenders that may be more willing to accept those newly self-employed. If not, you may need to approach a specialist lender. 

Do self-certification mortgages still exist?

No – self-certification mortgages were banned from the UK market in 2014. 

By Rachel Wait

Source: Forbes

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