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How to get a mortgage if you are self-employed
How to get a mortgage if you are self-employed 758 513 Stepping Stones Accountancy

How to get a mortgage if you are self-employed

At various times in our working life, we may all have a desire to do something for ourselves and step into the world of business ownership. However, it is only a very small percentage of people that take the plunge and become self-employed. Those that do take the required steps benefit from total independence, a true love for what they do, flexibility in working hours and potentially unlimited earnings.

There are a number of excellent benefits of being self-employed. However, the one problem that can arise is with trying to secure a mortgage. Historically securing a mortgage when you are self-employed can be a challenge as lenders are concerned about the lack of evidence when demonstrating income. To help with this process there are several steps that can be taken to put a self-employed professional in a positive position when applying for a new mortgage.

  1. Preparation

Keep excellent bookkeeping records of income and expenditure, look to use an accounting system which, when populated, can prepare reports of accurate and meaningful data. Always ensure you have a positive credit score and if possible, have a good level of savings.

  1. Speak to the experts

There are several excellent mortgage advisors that specialise in self-employed mortgages. Seek their professional advice and guidance as they can complete an initial fact find, check on affordability scales and match you to the right lenders.

  1. Seek financial accounting help

Use a professional accountant to prepare all financial information. A lender will look more favourably on the application if the accounts have been prepared by experts. The credibility of providing accurate information gives a lender lots of confidence.

  1. Credit history

Try to maintain a positive credit score and if there are any negative connotations then work to address these and allow time before completing the mortgage application. It goes without saying the better your credit score, the better the chances of securing a mortgage.

  1. Positive cash flow

Try to ensure you have a positive cash flow which demonstrates that any bank accounts have a healthy credit. Where possible also have good levels of personal savings which, should income one month be slow, demonstrates that the repayment of mortgage fees will always be covered.

  1. Present the right documentation

Copies of trading history (for the previous two years), HMRC documents such as an SA302 and evidence of upcoming contractual agreements will be required when any mortgage applications are made.

Other personal information used for evidence will also be required these can include passport or driving licence, utility bills, council tax bills and bank statements.

Finally, being on the electoral register with the right to vote is also advantageous as a lender can research this and use it as verification for identification purposes and proof of address.

If you have any questions or need some help with any aspect of self-employment and accountancy support then would be happy to help. Please call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk. You can also book a free call with Yarka – https://calendly.com/yarka-ssa/20min

Renting home office space to your company | Home Office Accountant Advice | Advice on Home Office Set-Up | Accountancy Support Bristol
Renting home office space to your company 758 513 Stepping Stones Accountancy

Renting home office space to your company

The last few years have seen more of us working from home and although life is slowly returning to normal, many organisations have realised there are many benefits of home working and are encouraging staff to make this change, whether full or part time, more permanent.

Naturally this change in work location incurs additional costs and this is recognised by HMRC with their work from home allowance. Whilst this allowance enables people to reclaim a proportion of the costs of running a home office, it does not allow directors of companies to claim for a percentage of their rent or mortgage interest charges.

To mitigate this, directors are entitled to charge rent to their company for the use of their property, with this then being declared as commercial rent on the directors’ personal tax return and enabling them to also declare a proportion of costs.

It is essential that a rental agreement is put in place between the director and the company so that the director can become the landlord and in turn charge commercial rent. If the rent is charged at the same rate as the costs, then income offsets costs and thus no rental profit needs to be declared. As rental income is not subject to National Insurance many see this as a cost-effective way to release money from your business.

Prior to setting up a formal rental agreement there are some elements that must be considered:

  • Will your mortgage provider/landlord allow you to enter into the agreement and how will it affect your home insurance?
  • Ensure that the agreement only covers trading hours as it is normal for a home office to be utilised for personal use outside of these hours.
  • The proposal to put an agreement in place must be evidenced in the board minutes and cannot be backdated.
  • The agreement must be in joint names if the property is joint owned.
  • Rental costs may include service charges for a proportion of heating, light and power costs.
  • The rental cost must not exceed local commercial rental values, or it may be deemed by HMRC as disguised distributions.
  • The director must genuinely work from home and be able to evidence the costs that are being claimed for.
  • If you are leasing a substantial part of your property or separate buildings then a formal lease agreement would be more appropriate and this must be drawn up with the help of a solicitor as it would be covered by the Landlord and Tenant Act and would have implications for Capital Gains Tax and Business Rates.

If you have any questions or need some accountancy help, please call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk. You can also book a free 30 minute call with Yarka – https://calendly.com/yarka-ssa/30min

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