Self-employment is on the increase in the UK, according to the Office for National Statistics.
From the start of the economic downturn in 2008 up until the end of 2012 a total of 367,000 people became self-employed – 60% of them making the move between 2011 and 2012.
Many of those becoming self-employed are doing so in order to bring in extra income – people saving for their first house for example.
However, those applying for a mortgage must prove their income, causing many to worry about a lack of adequate financial records.
Normally, if you’re employed the situation is fairly straightforward – the lender will want to see evidence that you’re able to make the repayments, usually in the form of payslips and bank statements.
If you’re self-employed, a lender will normally ask you to provide a business account going back two years – along with a copy of your SA302 form. Which begs the following question…
What is an SA302 form?
Once you have submitted your accounts for the year, HMRC will respond by sending you an SA302 form.
This states how much tax you owe or have overpaid by – effectively a calculation from HMRC showing your total income.
It’s also an accurate way to ensure that the income declared on a mortgage application is correct.
If you are self-employed or a small business owner, your best bet is to order a copy of the form right at the start of your mortgage application. You can do this by contacting HMRC.
Applying for the SA302 form
Your accountant may have this on file already or can request one on your behalf. If you don’t have a copy then you’ll have to order one from HMRC.
You can do this by calling HMRC on 0845 900 0444 and requesting for the form to be posted.
Make sure you’ve ticked everything off on the following checklist – don’t wait all that time on hold listening to music only to be told you don’t have the right information to hand.
- Full name and address of the person applying for an SA302 form
- Date of birth
- 10 digit individual tax code
- National Insurance number
Remember as well that HMRC are notorious for taking their time so don’t give them a reason to dawdle.
Get everything you’ll need for the application. That means getting the figures right so check with your lender if you’re unsure.
It’s also worth getting a reference for the application so if you feel the process is taking too long you can chase it up with HMRC. Don’t relent either – get the operator’s direct line if you can.
One last thing to remember: if you’re self-employed you may have National Insurance contributions on the calculation.
Can’t wait that long?
A chartered accountant’s letter confirming your income may be accepted as an alternative – but letters from other qualified accountants may not.
Please speak to your lender to see what they require and make sure your accountant is chartered (a member of the ICAEW).