Hello all,
I'm hoping someone can shed some light on this for me. Although qualified I've been working in indusrty for the past 10 or so years so I'm more than just a little out the loop in certain areas.
To cut a long story short, a selff employed friend of mine has been refused a loan on the basis of information provided on an SA103. The explanation given was that, in the lenders opinon, not enough profit/bottom line was made to enable them to offer the loan. So far so good.
My problem is that the lender seems to have used the profit AFTER capital allowances when deciding that the bottom line was insufficient to service the loan. One year subject to the lenders review just happened to be a year where a good chunk of plant was bought and therefore a large capial allowance claim was made.
Surely lenders cant base a decision on profit after capital allowances?
I am aware that there have been issues with the self employed and mortgages/loans in the past (removal of self certification etc etc).
As I say, this may well be food and drink to most of you but I am a bit out the loop and this seems crazy.
Thanks in advance for any replies.
Replies (8)
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Unfortunately this could well be correct
lenders tend to use taxable profit, and unfortunatelywith a high level of initial allowances currently being the norm, there can be large distortions. his accountant could write a letter but I dont hold out great hopes.
Interesting
The only time I've heard of this is when there are no formal self employed accounts, ie the only evidence of earnings are the self employed pages.
If an accountant draws up formal accounts, incorporating depreciation, then these should be acceptable and if they are not then I'd try to find a lender from the 21st century.
Thanks
What a joke. Yet another reason to become a Ltd Company or try a P2P lender.
Maybe we could all have a whip round and come up with the cash, more exciting than the Co-Ops interest rate, he who dares and all that...!
Agreed - lenders need to learn to look at actual income not taxable income (while of course ensuring that the two reconcile). But if borrowers do not take the trouble to ascertain and document their actual earnings, who can blame the lenders. If the borrowers do not know what their actual income is how can the lenders possibly take it into account? Just think how much worse it will get in future for those borrowers who opt for the cash basis for tax purposes!
Here the best solution is probably for an accountant, if client is willing to pay, to draw up a one page income statement on normal principles and attach an income tax computation to reconcile to the taxable figure.
The rationale I assume is that capital allowances derive generally from spending money,which
P & L fgures don't reflect in their simplistic minds