Documentation relating to HMRC’s online self-assessment tax returns is to be used to support applications for loans and mortgages by self-employed individuals. HMRC and the Council of Mortgage Lenders have worked together to improve the quality of this documentation in order to create a simpler credit application process for sole traders.
The Current Proof of Income Process
When applying for a mortgage or loan, individuals must provide evidence of their income so that their ability to repay could be assessed by the lender and used in making a decision about whether to grant credit.
Those who work for themselves have typically found this more difficult than those employed in a role with a fixed annual salary or hourly rate for a fixed number of hours. For the self-employed, the only acceptable evidence of income to date has been the Tax Calculation document (SA302), presented as a hard copy supplied by HMRC. This means that the self-employed typically have to contact HMRC in order to request a suitable hard copy and then await its arrival before proceeding.
HMRC have now made significant improvements to much of the documentation relating to self-assessment. A number of other documents are now to be accepted as evidence of income following the changes, which has made the information contained in these documents more detailed.
Specifically, improvements have been made to:
- The Online Tax Calculation: Previously, only the hard copy tax calculation provided by HMRC was accepted as evidence of income. However, the online version of this document has now been expanded to show a breakdown of the income that has been declared to HMRC on the tax return, and will therefore be acceptable as evidence of income in support of a credit application.
- The Tax Year Overview: This online document confirms the amount of tax that is due to HMRC following the submission of the tax return. It also displays payments that have been made. The new, more detailed document contains enough information to be of use to lenders in assessing applications.
The New Proof of Income Process
Following these changes, sole traders applying for mortgages and loans will no longer have to rely on the paper copy of the SA302 tax calculation to support their application. Rather, they will be able to provide these online documents, which can be readily printed out, without the need to contact HMRC and request a hard copy as before. Lenders will require both of these documents to be provided in order to support an application.
Some credit providers have already started accepting these documents, while others plan to begin doing so in the near future. As the process has not been fully and uniformly implemented across the lending industry at present, it is recommended that self-employed individuals contact lenders to confirm which documents are acceptable before making submissions. This can help to avoid any delays that may be caused by submitting documents which the lenders do not or have not yet begun to accept.