Self Employed Hub

Self Employed Hub

A comprehensive list of our policies and processes relating to self employed customers

Sole Traders

Only UK and ROI Self Employment will be considered.

 

1.       What is the definition of a Sole Trader?

 

HMRC confirm that a Sole Trader is anyone who has earned more than £1,000 from their own self-employed business in a tax year (6th April to 5th April).

To qualify for a NatWest Mortgage a customer’s business needs to be trading for a minimum of 2 years and have 2 years trading (earnings) figures

This includes income from Land and Property – Hobby or Professional Landlords.

We will only consider applications from UK or Republic of Ireland Sole Traders who submit their tax returns to HMRC or Irish Revenue Commissioners.

 

2.       What Income do we use?

 

We will use the average of the last 2 years or the most recent years income, whichever is the lower. This figure is taken from the Net Profit before tax has been paid.

For example, if you apply in September 2020 these must cover tax year April 2018/19.  However, if you apply after the 6th October 2020 you would need to supply figures for April 2019/20.

Where the latest accounts / tax returns are more than 18 months old then confirmation of the business performance since that date must be obtained from a Chartered or Registered Accountant. Customers who do not use an Accountant should provide their last 3 months personal and business bank statements, in support of their tax returns, to evidence that personal income and current business turnover remains in line with that declared on the tax returns.

 

Foster Carers

 

HMRC treat Foster Carers as being self-employed.  However, the SA302 is only used to determine any tax and NI payable after any qualifying amount has been deducted.

 

3.    What evidence do you need to provide for this income?

 

Self-employed customers can complete their tax self-assessments online, which we will accept as proof of income.  This must show from the documents that the return has been submitted to the Inland Revenue and is 100% complete. Any returns shown as “In Progress” will not be accepted. We also need to see a copy of their Tax Year Overview.

 

Submissions which are completed on the Accountants own systems are acceptable on condition that the Tax Year Overview is also provided and confirms the customers Unique Tax Reference number and the figures on the submission.

 

Foster Carers

Foster Carers should provide Local Authority confirmation of the last 2 years payments received, along with confirmation that the customer is still a registered Foster Carer.

 

4.        What other information you need to supply

 

We want to make sure our self-employed customers can afford their mortgage now and in the future.  We are therefore capturing additional information around how customers businesses have been affected due to Covid 19.  For each applicant that receives self-employed income we require them to complete our:

MANDATORY SELF-EMPLOYED SUBMISSION FORM 

 

It is vital that you give us as much information as possible about your customers situation.  Even if they have not been affected by the pandemic.  Our underwriters will review each customers circumstance and make an underwriting decision on the information you provide.  If there is information omitted, that may help them understand the situation, we can decline the case without appeal.

 

Bank Statements

 

We require 3 months Business and Personal Bank Statements for all Self-Employed applicants to assess their business turnover and affordability.  However, it is important to note that for Sole Traders it is NOT a legal requirement for them to have separate business banking.  So, they could use their personal accounts for business purposes. Please make this clear in your application so that we do not chase for information we don’t require.

 

BEFORE SUBMITTING ANY SELF-EMPLOYED APPLICATION PLEASE REVIEW THE FOLLOWING GUIDE:

Packaging Guide

 

PLEASE THEN ENSURE ALL REQUIRED DOCUMENTS ARE UPLOADED TO OUR SYSTEM IN FULL & THEN SUBMITTED SIMULTANIOUSLY.  WE WILL LAPSE ALL APPLICATIONS WHERE PACKAGING IS OUTSTANDING 30 DAYS FROM SUBMISSION.

 

Document Upload guidance

 

5.       How do I check my customers income fits?

 

For all self-employed cases please check our:

Affordability Calculator

 

Please check this before completing an Agreement In Principle or Full Mortgage Application.

Partnerships

Only UK and ROI Self Employment will be considered.

 

1.       What is the definition of a Partnership?

 

Simple Partnerships

 

These are where two or more owners share the business’s profits, and each partner pays tax on their share.

With simple Partnerships there is no legal requirement or need to lodge accounts at Companies House.  Simple Partnerships will submit Self-Assessment Tax Returns as would a Sole Trader.  They decide how their share is split, but it is usually split equally between the partners.

 

Salaried & Equity Partners of LLP’s (Limited Liability Partnerships)

 

These are commonly Professional Practices which can include (but not limited to) Accountants Solicitors Barristers Doctors and Dentists.  The different is that an Equity partner owns a portion of a company and is entitled to part of its profit, they also receive a regular salary in exchange for their services for the company. A salaried partner usually works for the company exclusively, while an unsalaried partner may have another job or other investments. A salaried partner may be a part of the company's management team (or even its only manager) while an unsalaried partner has little or no management role.

 

2.       What income do we use?

 

For Simple Partnerships we will use the lowest income figure over the 2-year period.  This is either an average of the last 2 years or this year’s earnings. This figure is taken from the Net Profit before tax has been paid.

For the majority of Salaried & Equity Partners we will require the same information as a sole trader or simple partnership i.e. the last 2 years Tax Assessments showing their total earnings for the year (which may be employed and self-employed).  For some Blue-Chip LLP’s, we can accept a letter from the Finance Director detailing the customers renumeration package alongside their monthly compensation statements (payslips). We also need to know if there is a Professional Practice Loan in place and what the repayment terms are.

 

Please speak to us if you need further information.

 

Customers must use the income they have declared to HMRC.  These figures must be no older than 18 months. 

For example, if you apply in September 2020 these must cover tax year April 2018/19.  However, if you apply after the 6th October 2020 you would need to supply figures for April 2019/20.

 

Where the latest accounts / tax returns are more than 18 months old then confirmation of the business performance since that date must be obtained from a Chartered or Registered Accountant. Customers who do not use an Accountant should provide their last 3 months personal and business bank statements, in support of their tax returns, to evidence that personal income and current business turnover remains in line with that declared on the tax returns.

 

3.       What evidence do you need to provide for this income?

 

Self-employed customers can complete their tax self-assessments online, which we will accept as proof of income.  These must show from the documents that the return has been submitted to the Inland Revenue and is 100% complete any returns shown as “In Progress” will not be accepted. We also need to see a copy of their Tax Year Overview.

 

Submissions which are completed on the Accountants own systems are acceptable on condition that the Tax Year Overview is also provided and confirms the customers Unique Tax Reference number and the figures on the submission.

 

4.       What other information you need to supply

 

We want to make sure our self-employed customers can afford their mortgage now and in the future.  We are therefore capturing additional information around how customers businesses have been affected due to Covid 19.  For each applicant that receives self-employed income we require them to complete our:

MANDATORY SELF-EMPLOYED SUBMISSION FORM 

 

It is vital that you give us as much information as possible about your customers situation.  Even if they have not been affected by the pandemic.  Our underwriters will review each customers circumstance and make an underwriting decision on the information you provide.  If there is information omitted, that may help them understand the situation, we can decline the case without appeal.

 

Bank Statements

 

We require 3 months Business and Personal Bank Statements for all Self-Employed applicants to assess their business turnover and affordability. 

 

BEFORE SUBMITTING ANY SELF-EMPLOYED APPLICATION PLEASE REVIEW THE FOLLOWING GUIDE

Packaging Guide

 

PLEASE THEN ENSURE ALL REQUIRED DOCUMENTS ARE UPLOADED TO OUR SYSTEM IN FULL & THEN SUBMITTED SIMULTANIOUSLY.  WE WILL LAPSE ALL APPLICATIONS WHERE PACKAGING IS OUTSTANDING 30 DAYS FROM SUBMISSION.

Document Upload Guidance

 

5.       How do I check my customers income fits?

 

For all self-employed cases please check our:

Affordability Calculator

 

Please check this before completing an Agreement In Principle or Full Mortgage Application. 

Limited Companies

1.       What’s the definition of a Limited Company?

 

In the UK a Limited Company is a form of business which is legally separate from its owners (shareholders) and managers (directors). It must be incorporated at Companies House.  It limits the amount of liability the shareholders and directors have to their stake in the company.  So, it is legally separate from the people who run it and has separate finances from any shareholder or directors’ personal ones. It can keep any profits it makes after paying tax.  This means that if a shareholder or director of a limited company applies for a mortgage, they are only able to use the income that the Limited Company has paid them in Salary or Dividends (return on shares).

 

2.       What income do we use?

 

Limited Company Directors with a shareholding of 20% or more of the company are assessed as self-employed using the following income figures:

We will use the lowest of:

The average of the last 2 years salary or the latest year’s salary if lower, plus the average of the last 2 years dividends or the latest years dividends if lower. For example

 

2018 Salary £12,000 

2019 Salary £10,000]

2018 Dividends £10,000

2019 Dividends £30,000

Salary aspect = £10,000 as latest year is lowest.  Dividends aspect = £20,000 as averaging due to latest year being highest.

This gives acceptable income of £30,000.

 

Limited Company Accounts must be submitted to Companies House annually so they can be viewed by any member of the public.  Most Limited Company accounts must be filed within 9 months of the accounting reference date to avoid penalties.  A company can change its accounting reference date, sometimes this means a shorter accounting period than the standard 12 months. 

 

3.       What evidence do you need to provide for this income?

 

We require the finalised Accounts that cover the last 2 Years Trading. As with Sole Traders and Partnerships accounts should be no older than 18 months. 

The business should be making a profit and be solvent.  The Dividend payments should not exceed the current year’s profits, and we will not accept income from retained profit or Directors Loans (money being repaid to the director by the company). 

For Complex Company Structures, for example, where there may be more than one Limited Company set up under one Holding Company. To understand the overall Business and to make sure that it can support the Directors Income and remain solvent, please provide ALL relevant Limited Company Accounts along with all the corresponding Bank Statements. 

Sometimes a Company may show less profit than they would normally, due to a one-off extraordinary acquisition (i.e. Machinery).  In this case please supply a written letter of explanation from the Company Accountant.

 

4.       What other information you need to supply

 

We want to make sure our self-employed customers can afford their mortgage now and in the future.  We are therefore capturing additional information around how customers businesses have been affected due to Covid 19.  For each applicant that receives self-employed income we require them to complete our: MANDATORY SELF-EMPLOYED SUBMISSION FORM

 

It is vital that you give us as much information as possible about your customers situation.  Even if they have not been affected by the pandemic.  Our underwriters will review each customers circumstance and make an underwriting decision on the information you provide.  If there is information omitted, that may help them understand the situation, we can decline the case without appeal.

 

Bank Statements

 

We require 3 months Business and Personal Bank Statements for all Self-Employed applicants to assess their business turnover and affordability

 

BEFORE SUBMITTING ANY SELF-EMPLOYED APPLICATION PLEASE REVIEW THE FOLLOWING GUIDE

Packaging Guide

 

PLEASE THEN ENSURE ALL REQUIRED DOCUMENTS ARE UPLOADED TO OUR SYSTEM IN FULL & THEN SUBMITTED SIMULTANIOUSLY.  WE WILL LAPSE ALL APPLICATIONS WHERE PACKAGING IS OUTSTANDING 20 DAYS FROM SUBMISSION.

Document Upload Guidance

 

5.       How do I check my customers income fits?

 

For all self-employed cases please check our:

Affordability Calculator

 

Please check this before completing an Agreement In Principle or Full Mortgage Application. 

Contractors

1.       What’s the definition of a Contractor?

 

A contractor is a person or firm that undertakes a contract to provide materials or labour to perform a service or do a job.  For any self-employed contractor who earns under £75,000 per annum we will simply treat them as Self Employed, and therefore please see the relevant information under Sole Trader, Partnership and Limited Companies

 

2.       What income do we use?

 

High Income Earning Contractors (Day Rate Contractors).

 

For self-employed contractors who earn more than £75,000 per year, instead of using HMRC declared income we’ll calculate their income as their average weekly contract income multiplied by 46.

 

3.       What evidence do you need to provide for this income?

 

Contract(s) that cover a 12-month period, with a minimum of 6 months’ contracts already completed immediately before the date of their mortgage application.

Significant business expenses that have not been reimbursed as part of an applicant’s contract must be fully understood, evidenced and included in the affordability calculation.  These could include (but are not limited to) things like: 

·         Car/finance loans

·         Extended travel and accommodation costs

·         Training courses

·         Professional indemnity insurance

.          Partner/spouse/employee salaries

 

In order to evidence this, we will still need to see a copy of the latest years Limited Company Accounts

 

They will need to show us that they have taken no more than a six-week break between contracts in the 12-month period.

They will need to show us evidence that their tax is paid and up to date.

If the application is joint and one applicant owns 100% of the company and the other applicant is employed by the company (in this instance the employed applicant’s income should be excluded to avoid double-counting.

 

Umbrella arrangements.

 

We cannot use the high earning contractors’ criteria to consider applications from customers using an umbrella company arrangement. Under these circumstances we would consider an application under our PAYE contract worker policy.

 

4.       What other information you need to supply

 

We want to make sure our self-employed customers can afford their mortgage now and in the future.  We are therefore capturing additional information around how customers businesses have been affected due to Covid 19.  For each applicant that receives self-employed income we require them to complete our:

MANDATORY SELF-EMPLOYED SUBMISSION FORM

 

It is vital that you give us as much information as possible about your customers situation.  Even if they have not been affected by the pandemic.  Our underwriters will review each customers circumstance and make an underwriting decision on the information you provide.  If there is information omitted, that may help them understand the situation, we can decline the case without appeal.

 

Bank Statements

 

We require 3 months Business and Personal Bank Statements for all Self-Employed applicants to assess their business turnover and affordability

 

BEFORE SUBMITTING ANY SELF-EMPLOYED APPLICATION PLEASE REVIEW THE FOLLOWING GUIDE

Packaging Guide

 

PLEASE THEN ENSURE ALL REQUIRED DOCUMENTS ARE UPLOADED TO OUR SYSTEM IN FULL & THEN SUBMITTED SIMULTANIOUSLY.  WE WILL LAPSE ALL APPLICATIONS WHERE PACKAGING IS OUTSTANDING 20 DAYS FROM SUBMISSION.

 

5.       How do I check my customers income fits?

 

For all self-employed cases please check our:

Affordability Calculator

 

Please check this before completing an Agreement In Principle or Full Mortgage Application.

 

Construction Industry Scheme (CIS, Sub Contractors)

 

1.      What is the definition of a CIS Contractor

 

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.

 

CIS covers most construction work to:

·         A permanent or temporary building or structure

·         Civil engineering work like roads and bridges

For the purpose of CIS, construction work includes:

·         Preparing the site, e.g. laying foundations and providing access works

·         Demolition and dismantling

·         Building work

·         Alterations, repairs and decorating

·         Installing systems for heating, lighting, power, water and ventilation

·         Cleaning the inside of buildings after construction work

 

https://www.gov.uk/what-is-the-construction-industry-scheme

 

2.       What Income will we use?

 

 

Whilst technically these applicants are self-employed for tax purposes, for our policy process please select EMPLOYED on our Affordability Calculator, AIP and Application Form

We will use the Gross income figure (minus expenses) shown over the last 12 months from the contract vouchers/statements (applicants also require a current contract)

 

3.       What evidence do you need to provide for this income?

 

Confirmation from the main Contracting Company that a current contract is in place.

12 Months CIS Vouchers/Statements.

 

4.        What other information you need to supply?

 

Bank Statements

 

Where the loan to value exceeds 75%, we require 3 months Personal Bank Statements

 

BEFORE SUBMITTING ANY APPLICATION PLEASE REVIEW THE FOLLOWING GUIDE TO PACKAGING AND SUBMIT ALL DOCCUMENTS REQUIRED.  WE WILL LAPSE ALL APPLICATIONS WHERE WE ARE STILL OUTSTANDING PACKAGING 30 DAYS FROM SUBMISSION

Packaging Guide

 

5.       How do I check my customers income fits?

 

For all self-employed cases please check our:

Affordability Calculator

 

Please check this before completing an Agreement In Principle or Full Mortgage Application 

Government Support Schemes

 

With the current restrictions and the UK Government extending the SEISS grant until March 2021, we have reviewed and updated our self-employed policy to ensure we are doing the right thing for customers.

 

Since 14 July 2020, individuals applying for a SEISS grant have been required to confirm their business has been impacted by Covid-19 to receive the grant.  Due to this confirmed impact and the potential ongoing effect Covid-19 has to businesses, we have made some changes to our self-employed policy.   

 

At this time our primary purpose remains to ensure that any mortgage we provide to customers is affordable.

 

What you need to know

 

The following income cannot be used to assess mortgage affordability:

 

·         Income derived from a business that has applied for or received a SEISS grant on or after 14 July 2020.

We will continue to consider other forms of income to support an application for self-employed customers whose business have been impacted, i.e. rental, employed income or other businesses where SEISS grants have not been applied for.

 

Limited companies are not impacted by this change.

 

We will continue to review our policy in light of any appropriate changes which affect self-employed customers.

 

What you need to do

 

As part of the required packaging when submitting a self-employed please complete the updated version of the

Mandatory Self Employed Application Submission Sheet

 

FAQs

 


1. My customer has a Limited Company, do I need to review the last 3 months bank statement?

Yes – The company could still have been impacted by Covid-19 and the statements should be reviewed for adverse trends.  If any trends are identified please provide further information in the Self Employed Supplementary Information Sheet

 

2. If a customer is a contract worker and their income will be reducing, how do we assess? For example a contract worker who previously had a £50,000 contract, which has now been replaced with a £35,000 contract.  

You must use the customer's new revised income for affordability assessment.

 

You must obtain evidence of what the customer's new income is (for example, in the form of a new contract). If a customer cannot obtain evidence we cannot help them at this time.

 

3. My customer has had a temporary change to their income such as a business grant, family support or a temporary increase in benefits.  Can I use the increased income when assessing affordability?     

No – You cannot include any temporary income when assessing affordability as per current guidance.

 

Please ensure you adhere to updated guidance if this includes a SEISS grant.

 

4. My customer has applied for the second or subsequent version of the SEISS grant but this was declined – can we lend?             

No. By applying for the grant the customers have declared that there is an ongoing impact to their business from which they derive their source of income.

 

5. My customer has applied for a SEISS grant and is still awaiting an outcome on acceptance OR has received it and is willing to repay it – can we lend?

No. By applying for the grant the customers has declared that there is an ongoing impact to their business, therefore this income cannot be used for affordability purposes.

 

6. Can an application be submitted where only a small amount of the SEISS grant is required to pass affordability?

No.  We will not accept applications where any amount of SEISS grant applied for on/after 14/7/2020 is required to support affordability.

 

7. My customer has received a SEISS grant, can they apply?             

Scenario

Can we lend?

I have not had a grant and my business has not been impacted

Yes

I have had the first grant, no additional grant and business not impacted            

Yes

I have applied for a grant on/after 14/07/2020

No

I have taken 2 or more grants, business not impacted

No

My business has been impacted, e.g. has an ongoing reduction in Turnover

No

 

8. My customer has applied for the second or subsequent versions of the SEISS grant but now claims to have returned to pre Covid levels of trading – can we lend?    

No.  As the customer has declared that there is an ongoing impact to their business there will not be an acceptable period of evidence (e.g. 12 months) that they have returned to normal trading levels and sustainable profits.

 

9. There has been a material change in the application details or the application has been rekeyed due to changes in circumstances.  Can the application proceed under the original policy terms?  

No - all applications (including re-key and material changes) submitted on or after 23/11/2020 for self-employed customers must adhere to the new guidance.

 

10.My customers are applying for a joint mortgage, one applicant is self-employed and has income we cannot use (taken a SEISS grant on or after 14/07 and/or is impacted by Covid-19). The mortgage is affordable using their non-self-employed income and/or the other party's income. Can you lend?           

Yes, providing that the other forms of income are sustainable (e.g. employed income, rental income) these can be used as part of the affordability calculation.

Acceptable Accountants

 

Audited Accounts are acceptable if they are prepared by a person who is suitably qualified and a member of an organisation such as:

·         Chartered Accountant

·         Certified Accountant

·         Association of Authorised Public Accountants

·         Institute of Financial Accountants

·         Chartered Institute of Taxation

·         Chartered Public Accountants

·         Association of Accounting Technicians

·         Chartered Institute of Management Accountants

·         Association of Taxation Technicians

·         Institute of Chartered Secretaries & Administrators

·         Association of International Accountants

 

Please note that this is not an exhaustive list and other appropriate professional bodies are acceptable.

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