Tax Year End
Next week marks the 2021-22 tax year end. The personal tax year runs from the 6th April each year and ends on the 5th April the following year. For those who are self-employed, including limited company directors, now is the last chance to have any effect on the figures you will show on your tax return.
Mortgage lenders typically use a tax calculation and tax year overview to verify all self-employed income. The tax calculation is a summary of your tax return and shows your income received for the tax year, as well as your tax liability. The tax year overview confirms how much tax has been paid. For sole traders and partnerships, these are the documents used to evidence income for mortgage purposes. For limited company directors, these are also used to evidence income although some lenders will use company accounts if they’re lending based on the net profit of the business.
Self-employed individuals, together with their accountants, are often looking for ways to reduce their tax liability. While legally manoeuvring your figures to show a reduced level of income/profit can be great for saving on the tax bill, a mortgage lender will only treat your income as what you declare on paper to HMRC. If you ’re looking to buy your first property, move home or remortgage, understanding your income figures is important to understand how much a mortgage lender will offer you. Declare a lower amount and you may not be able to borrow enough to get the property you want.
Looking at the last few days of the tax year and what difference can be made before the year end… For limited company directors, this is simple. Taking additional salary or dividends would boost the income shown for the tax year. Your accountant will be able to advise on how to do this in the most tax efficient manner. For sole traders, this is a little less straightforward. Holding off on purchasing large business expenses until after the 5th April would be wise if you’re looking to maximise 2021-22 figures. Chasing up outstanding payments to land in your account before midnight on the 5th April would be beneficial as well!
If you’re self-employed and you’re looking to use 2021-22 figures to help you buy or remortgage, get in touch before the tax year ends for free, professional advice. We can go through mortgage affordability calculations to look at what level of income you would need to be showing in order to purchase the property you’re after.