Policies and Processes relating to Self Employed Customers

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 the underwriter assesses the case in September 2022 these must cover the tax year April 2020/21. However if the underwriter assesses the case after the 6^th October 2022 you would need to supply documents for April 2021/22.

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 Returns (SA100) 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 evidence do you need to provide for this income?

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.

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 the underwriter assesses the case in September 2022 these must cover the tax year April 2020/21. However if the underwriter assesses the case after the 6^th October 2022 you would need to supply documents for April 2021/22.

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 Returns (SA100) 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

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. 

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 company accounts that cover the last 2 years trading, along with the last 2 years Tax Year Calculations (SA302) and tax year overview (to show tax paid) or 2 years tax returns (SA100) and tax year overview. As with Sole Trader and Partnerships accounts should be no older than 18 months old when the underwriter assesses the case.

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

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. 

What is the definition of a contractor?

A contractor is a person or firm who undertakes a contract to prov ide 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. Therefore, please see relevant information under Sole Trader, Partnership and Limited Companies.

What income do we use?

High Income Contractors

For self employed contractors who earn more than £75,000 per annum, instead of using HMRC declared income we'll calculate their income as their average weekly contract income multiplied by 46, provided they can confirm evidence of:

• their latest 3 months’ consecutive personal bank statements for their main account (not required if their main account is with NatWest or RBS).   
• where significant business expenses are identified on the application, 3 months’ consecutive bank statements (personal or business) detailing these.
• a copy of contract(s) to encompass a 12-month period, with a minimum of 6 months’ contract(s) already completed immediately preceding the date of application.
  
• they have taken no more than a six week break between contracts in the 12-month period.
  
• the tax position is paid and up to date.

Where a day rate contractor has switched/is switching to either a Fixed Short Term contract (as employee on PAYE) or to be paid via an Umbrella Company, then we will still seek to assist on such cases provided that our existing high income day rate contractor criteria is met.

Many self-employed contractors may also trade via a Limited Company because it may be tax efficient for them to do so and subject to the criteria below we can help them under this policy . There is some additional information that you need to be aware of when submitting an application for a customer who meets these criteria:

• When using the NWIS web site to submit an application, you must key the applicant as ‘Self-employed’ NOT ‘Employed’. 
• Operating via a limited company. The applicant(s) must meet one of the following circumstances:

o   Single applicant owning 100% of the company

o   Joint application where one applicant owns 100% of the company

o   Joint application where the company is jointly owned

o   Joint application where 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).

• Significant business expenses not reimbursed as part of an applicant’s contract. Significant business expenses as detailed below, must be fully understood, evidenced and accounted for in the affordability calculation. Significant business expenses may be, though not limited to:

o   Car/finance loans

o   Extended travel and accommodation costs

o   Training courses

o   Professional indemnity insurance

o   Partner/spouse/employee salaries

In addition to this:

For Fixed Short Term Contracts (as employee on PAYE), please include the most recent 4 weekly pay slips and a copy of the contract.  If the contract is yet to start please provide a copy of the contract.  If the applicant does not yet have 4 weekly pay slips then a copy of the contract along with any pay slips received so far should be provided.

For Umbrella Company Contracts, please include the most recent 4 weekly pay slips and a copy of the contract.  If the contract is yet to start then a copy of the contract will be required and we also need to know the amount to be levied by the Umbrella Company for use of their services – this figure will need to be deducted from the customer’s income.  If this is not clear, we may not be able to assess the application until we see sight of the first pay slip.

When a contractor has reverted to Fixed Short Term contracts (as employee on PAYE) or Umbrella Company contracts, we still wish the cases to be submitted as ‘self-employed’.  This is our risk appetite, given the complex nature of these arrangements and the contractors most recent contracting history.

For any cases that do not fit under the above criteria then our standard PAYE contract worker policy will be applicable.

For all EMPLOYED PAYE and CIS Contractors, please visit our A-Z.

Please refer to our Income and Packaging Guide for income proof.

From 17 August 2021, changes to our policy means we can now support an increased number of self employed customers by allowing applications from those self-employed customers who have historically claimed SEISS grants. Applicants will however need to provide three months Business Bank Statements, clear of any SEISS grant income (to show they’ve bounced back) and pass our standard credit checks and procedures.

As always our primary purpose remains to ensure that any mortgage we provide to customers is affordable.

 What you need to know

·         We will now accept applications from self-employed customers who have previously received the SEISS grant providing this is not within the 3 months preceding the application

·         As we do today, 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.

·         We will assess the business’ capability to sustain the level of income declared using the last 3 months business bank statements 

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

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. 

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 received a SEISS grant, can they apply?             

4. 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?    

Yes, providing you have not received a grant in the 3 months preceding your application

5. 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 17/08/2021 for self-employed customers must adhere to the new guidance.

6. My customers are applying for a joint mortgage, one applicant is self-employed and has income we cannot use (taken a SEISS grant in the 3 months preceding the application). 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.

7. My customer is not able to produce full and financial accounts, what should I do?

You must provide us with a memo to confirm that full and financial accounts are not able to be provided.  Acceptable reasons include where the customer is a Sole Trader and not legally obliged to produce full accounts or complex partnership arrangements where the customer does not have access to the full accounts

8. My customer is a Sole Trader who only holds a personal account so cannot produce business bank statements.  What should I do?

You must provide us with a memo to explain no business bank account is held and confirm that all business activity is conducted through the personal account

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.