Self Employed Mortgage Preparation - salary vs expenses

dialemma

Hi, hoping to apply for mortgage next Spring and trying to get mortgage ready. DH is self employed proprietary director of his own company, currently pays salary plus expenses from company each month. Drawing expenses is obviously beneficial from a tax perspective, however in the short term when considering mortgage application would we be better placed if he drew a larger salary and took the tax hit so that pay slips and salary looks higher, even though materially take home would be the same. Does any one know how banks view 'expenses' - are the reckon able when reviewing mortgage app? TIA

johnnyskeleton

Who is "DH"?

If i understand you correctly, you are suggesting that "expenses" are not normal business expenses properly incurred but are things like paying your home electricity bill and mortgage through the company accounts?

Normal business expenses will go through his business accounts anyway so not declaring them is foolish. Claiming additional expenses as business expenses is tax fraud and a serious criminal offence.

So bottom line, this person should speak to a fully qualified accountant and make proper tax returns.

dialemma

Hi, DH is husband. Expenses are normal business expenses properly incurred e.g mileage & subsistence, the are receipted and accounted for - we employ an accountant and are fully tax compliant. My question simply is if my husbands pay slip shows a break down of salary e.g 1000 PCM plus expenses 200 PCM or just simply a salary of 1200 PCM gross which figure will a bank take into consideration? In scenario 1 husband would pay PAYE on 1000 with 200 tax free legit. In scenario 2 he would pay PAYE on 1400 but in terms of mortgage application it would seem like a larger gross income? It's just that I have heard that many banks won't consider the expenses paid when calculating mortgage entitlements

johnnyskeleton wrote: »

Who is "DH"?

If i understand you correctly, you are suggesting that "expenses" are not normal business expenses properly incurred but are things like paying your home electricity bill and mortgage through the company accounts?

Normal business expenses will go through his business accounts anyway so not declaring them is foolish. Claiming additional expenses as business expenses is tax fraud and a serious criminal offence.

So bottom line, this person should speak to a fully qualified accountant and make proper tax returns.

DublinDilbert

They will normally take the income figure from revenues notice of assessment. This will be your total income less any expenses incurred for business.

So for example as a sole trader you may use your personal car and say claim 65% of the running expenses as part of you business. This could be 2k/year, but the back won't consider this as income.

Mellor

I imagine they base their decision off your disposable income, what you can actually afford to repay, ie take home pay less bills, rent, living expenses, repayments etc.
If you re-jig payment arrangements to bump up the salary, you really should report higher living expenses as you've absorbed the business expenses into your own.

Mellor

I imagine they base their decision off your disposable income, what you can actually afford to repay, ie take home pay less bills, rent, living expenses, repayments etc.
If you re-jig payment arrangements to bump up the salary, you really should report higher living expenses as you've absorbed the business expenses into your own.