Self employed application questions

A minimum of 12 months for 1 year’s trading. An accountant will need to provide a projection for the current year's trading. 

We use the projection to establish their first year's trading income is sustainable. Affordability will be calculated using the first year's trading figures. 

An accountant is not required unless your client only has 1 year's trading. In this case, we would need an accountant to provide a projection. 

2 years.

Latest trading accounts can be a maximum of 18 months old at the point of application submission.

Yes, we can consider a customer whose business has changed from sole trader to limited company, as long as the ownership of the business has not changed. We will also need confirmation from an accountant that this change in the business entity is not expected to affect the income moving forwards. 

The business can have been a limited company for less than 12 months subject to confirmation from the accountant that the change in the business entity is not expected to affect the income moving forwards.

If there has been a steady income increase, we can consider using our owner occupier products. However, when there has been a substantial increase we can still consider an application for our specialist self employed products. 

Providing the applicant owns at least 50% of the shares in the business, we can consider using either their share of the profits after taxation and directors salaries OR their salary and dividends. If the applicant owns less than 50% of the shares in their business then we would use the salary and dividends. If the applicant owns less than 20% of the shares in the business, please speak to us.  

None. As standard, we only require 1 month's personal bank statements. There may be occasions for more complex applications when an underwriter may ask for additional statements to enable them to give you a risk decision.

We can consider up to 90% of income from a business that holds a portfolio of BTLs. 

It is important that there is a full understanding of the shareholding position. We often see errors made with the income levels of applicants because too much or even too little income has been used. 
 
Another example is where gross profit is being used rather than profit after tax (corporation tax rather than income tax).
 
A frequent error is not informing us of the trading period accounts, which prevents us from calculating the 12-month figure we need. For example, if we are given accounts that cover 15 months, we will calculate the figure by dividing by 15 and then multiplying by 12. 

We understand that self employed applications can sometimes be more complex. To enable us to understand more about the case we have the facility for you to add notes onto our portal. There are three details that are often missed and can be easily added to the portal:

• We get asked to use the most recent years trading however the underwriter is provided with no rationale as to why we should. A simple way to provide this is to think about these three things, Past/Present/Future and write a clear bullet point on each one i.e. what the historic trading position has been, why the profit has increased now and whether it is sustainable for the future.
• If the company’s net current liabilities or net assets/worth/shareholders funds are negative we need to know the reasons for this and also to confirm if there are any company loans owed to the directors.
• It is also useful to know what the client's business is. Sometimes the name of the company does not make it clear what they actually do.