Over many years, in cases where the SA302 is insufficient to backup a mortgage, lenders have asked to see the accounts to make sure there were, in fact, sufficient profits to have enabled extra dividends, in other words they review the available profits rather than the SA302.
My client is telling me that her broker is insisting that she must pay the maximum dividends (and so incur extra tax liabilities) to get her SA302 as high as possible, as it's only specialist lenders that are prepared to look at the accounts. From memory, with other clients, those specialist lenders have been included Halifax, Santander and Nationwide!
With not that much in profits, it would seem that she could process a £50K salary, putting the company into technical insolvency, but the lender would be delighted with the SA302!
She's getting upset with me and so I'm likey to give in but has anyone else had recent experience of lenders' lending policies on something like this?
TIA
Replies (37)
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You're correct that Santander for one do look at accounts. I'm surprised that SA302s are still on the agenda because they've been unavailable for agents for at least a year now.
The Council of Mortgage Lenders have agreed that proprietary software tax calculations will effectively replace the SA302s and need to be shown together with the tax year overview (which merely confirms the tax liability - in many cases zero before the dividend tax).
My experience of these things is that the client sometimes needs to find another broker since they sometimes have a scary lack of knowledge of accounts and taxable income.
To process a salary of £50K in the circumstances you describe would not be acceptable to me for obvious reasons. It's hardly your fault if the lady's figures don't stack up.
People think getting the mortgage is the end of the story.
They don't think about paying it.
Tell the client it's her own funeral. Where's she getting the dividend tax from ? Another mortgage ?
Where's the SA302 together with the tax year overview going to come from? It'll be at least 6 April 2019 before they are available.
Sounds like the broker is in the little knowledge is a dangerous thing camp.
Agree. Tell your client that you can do it, but it’ll cost her X in extra tax. Then suggest she gets another broker who is used to dealing with business owners.
Sympathy for you pal.
I've had exactly the scenario you describe.
Mortgage brokers don't understand limited company / OMB taxation a lot of the time and trying to get the client to understand is just as difficult.
Send her an email in as plain language as possible, setting out the reasons for your reluctance and the additional cost to her if she chooses that route.
If she chooses that route, she is effectively taking tax advice from a mortgage broker and will pay the price accordingly.
At least you can delight in sending her a summary / reminder of all the tax payable when the time comes.
This is why I like email, as people have very bad memories when it suits.
The whole system is flawed and in my experience the underwriters cause more irritation than anyone. They can't get their head round the profit per accounts and taxable profit.
I hope you charge for completing mortgage certificates as the amount of time taken to see the application to completion is becoming a pain in the a£$e.
I feel your pain - the lenders want belt and braces cast iron guarantees which as accountants we can't give. Santander are the worst in my experience. They don't care that their borrower has been prudent and not milked their company dry. I don't see how you could produce a SA302 for dividends that she is drawing now it wouldn't be on a tax return until next April. I'm guessing that the broker will be asking you to do some sort of projections. I would worry that once the mortgage has been approved she treats it as a paper exercise and asks you to remove the dividends in next years return.
Unfortunately I couldnt load this comment this morning and it looks as though I'm too late ...but I was going to say:
..Forget the broker and what the client wants - either she has taken the dividends or not.
You also need to be looking at Part 23 s 830 of the Companies Act 2006. When a dividend is declared the Company's profits available for distribution must be more than sufficient to permit payment. From what you say this is not the case. So you look at increasing salary or have a bonus. However.. this surely is in the past? so HMRC may query such a big hike.
There are brokers/mortgage providers around that do understand the 'low salary/high div' - but they are few in my experience!
I have just today completed a form for a client for a Santander mortgage and they have asked for the net and gross profit and the salary/div info for the past 3 years available accounts. In the past for Santander I've not had to also submit accounts but noticed that the form says that they will only accept accounts being prepared by accountants whose qualification is on their specific list.
As thomas34 says
SA302's are, in effect no more although brokers still call the Tax Calculation that.
As we know HMRC were inundated with requests for faxing SA302's and they made an agreement with UK Finance (formerly the Council of Mortgage Lenders) and agreed that their members would accept self-served copies of the tax calculation from the HMRC online account or the commercial software used to file the self assessment return (they usually want copies of downloaded 'Tax Overviews' as well).
>> You get to know which providers are a pain and shouldnt be used. Santander is one but unlike Citibank they do understand the 'low salary/high dividends' model of directors.
You dont touch Halifax with a barge pole.
With your client she needs to go to a different broker as others have said- one whose advice wont break the Companies Act law. I spoke with a broker last week who told me that there are over 450 products on the market and some providers are going back to the accountants certificate without accounts etc.
You client might have to pay a little higher interest or if it is a remortgage might have to stay where she is until her profits are high enough.
Send me a private message and I will let you have the name of a broker gives good (legal) advice.
Had a great one a couple of weeks ago. Broker looking at the 2016-17 SATR and accounts Y/E 31 March 2017 asked if we could amend them both and include a much, much higher dividend!
Rather than get into an argument about the very dodgy issues of doing this, I pointed her in the direction of the retained profits at 31 March 2017 being only £8k and the fact that my client is only a 50% shareholder. "Would an extra £4k make any difference?" I asked. "Er no, can you make it more like £20k" came the reply!
Had a great one a couple of weeks ago. Broker looking at the 2016-17 SATR and accounts Y/E 31 March 2017 asked if we could amend them both and include a much, much higher dividend!
Rather than get into an argument about the very dodgy issues of doing this, I pointed her in the direction of the retained profits at 31 March 2017 being only £8k and the fact that my client is only a 50% shareholder. "Would an extra £4k make any difference?" I asked. "Er no, can you make it more like £20k" came the reply!
As I said, the broker's job is to get the mortgage.
If they had to guarantee it, their attitude might be more realistic.
SA302s are still often requested by brokers but most brokers don't really mean a 'proper' SA302 they mean the tax comp and the tax overview....the term SA302 is simply still used for ease and laziness. It took most brokers at least a year to realise the new requirements were in place even though they we told by accountants often enough. I think the message has now finally hit home (for m0st of them).
I note that the 2018 Tax Calculations produced by TaxCalc are headed with the Client name and then below that "HMRC Tax Calculation Summary - SA302" and then below that the UTR and National Insurance Number.
Job Done .... automatically.
Lat month had a client apply for a mortgage with Barclays. Sent off all the usual SA302s, tax year overview and very healthy 3 years accounts. Barclays would not agree the mortgage because my client owed HMRC £3.45 from 2017 and insisted it be paid before they went any further.
It may be that by in effect making decisions as to the company's dividend payments the broker could be considered a shadow director and if the company then goes bust...……
Tell the broker about it!
Hi Paul
Old story of lenders advertising great rates and then when a small business owner dares to apply for it huge barriers suddenly crop up and, hey presto, we're the bad guys.
Personally I always push clients wherever possible towards speaking to the likes of Santander, Natwest or Barclays where an element of common sense still prevails.
I'm just up the road from you, from memory, and if the company numbers fit then my contact at Barclays never comes up with ridiculous suggestions like your client has presented in such circumstances so, whilst I am sure you have your own network already in place, if you'd like a new name for the list then give me a shout.
We tend to be getting multiple requests for the same information. Initially the broker for the SA302 tax calculations, then the tax overviews, then later the accounts, followed by queries around directors loan accounts and dividends (which they clearly do not understand), then a letter from the mortgage lender asking for all of the same information plus accountants certificate - Am I the only one who thinks that brokers should be charged for the service we are providing them.
Imho, you are providing the service to the intending borrower, albeit at the request of the broker.
Has everything already been filed. Accounts, CT600, payroll for the year?
Does the client want you to go back and re-file everything? I would charge a hefty fee if that was the case.
If by paying herself so much that the company becomes technically insolvent, I would advise the client of that and wouldn't have anything to do with it. certainly I would not condone it or re-file in these circumstances.
Personally you don't need clients like that, your reputation is far more important than one client like this.
I am always astounded at how idiotic some lenders are. On many occasions they also want the accountant to give comfort around the accounts asking such things such as 'is the profit sustainable'. You must of course NEVER answer these questions from a lender.
If the client does not like it then they need to find another accountant!
Like Jennifer I've had to complete a couple of the new forms from Santander. I've had endless problems once the forms were submitted. I've had loads of questions that I've had to write a letter to Santander to answer. Mainly about movements in profits between years, dividends drawn and the usual about sustainability of the business and future profits. Which I can't answer. They also wanted draft accounts. The form doesn't give them the full picture which they would have from the accounts especially when the company is owned by two or more unrelated shareholders.
Yes. I've had the SA 302 problem. I am finding mortgage brokers are becoming more fussy and pedantic about documentation and ask for your qualifications, rather than the number of years experience you have, and how long you've done the client's accounts.
Client rang while with the bank ‘manager’. ‘Can you tell us what the profits were for last year?’ ‘From the accounts or the tax return?’ Voice of banker in the background ‘Doesn’t matter’. Well, that’s alright then.
Then there was the broker who wanted the tax overview superimposed on our headed paper. As though making us look more official than HMRC was going to help.
The broker would only look at the sa302, he would not look at the accounts, Wifes wages were shown on the accounts, he would not take these into account on her application as he did not have a p60, therefore the clients lost the advantage of the wifes wages