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SA302 only evidence for mortgage?

Broker insisting that he can only consider SA302 and so insisting that client pays max dividends

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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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By thomas34
25th Jun 2018 18:49

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.

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RLI
By lionofludesch
25th Jun 2018 18:59

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 ?

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By Wanderer
25th Jun 2018 19:37

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.

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By atleastisoundknowledgable...
25th Jun 2018 23:43

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.

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By Manchester_man
26th Jun 2018 00:06

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.

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wolfy
By rob winder
26th Jun 2018 08:16

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.

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By lesley.barnes
26th Jun 2018 09:34

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.

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Teignmouth
By Paul Scholes
26th Jun 2018 09:57

Thanks All

I've made my position clear to the client and, thankfully, decided several years ago (when I quit the ACCA) not to get directly involved in mortgages or SA302s, it's up to the client. Also she does her own tax and knows the consequences.

Profits willing, I'll process the dividends the client wants but my fear is that once the broker uses the SA302 to move the application up the line, someone further up will say "hold on she's an owner/manager, are these salary & dividends sustainable? Let's look at the accounts for a few years and into the future."

Roll on retirement!

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RLI
By lionofludesch
26th Jun 2018 09:57

The broker's job is to get the mortgage, not pay it.

And there's the problem.

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By andrew1211
26th Jun 2018 11:19

Not really but I suggest she change brokers.....

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Jennifer Adams
By Jennifer Adams
26th Jun 2018 12:58

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.

Thanks (3)
Replying to Jennifer Adams:
Teignmouth
By Paul Scholes
26th Jun 2018 13:10

Thanks Jennifer - yes all of the company law stuff has been fully aired with the director over the past couple of weeks.

There are other considerations here but I wanted to keep the question purely to questioning whether it's now common practice for lenders to just look at SA302s.

From my experience lenders have always insisted on "qualified" accountant's opinions/certificates which is why it was such a relief to drop the ACCA 6 years ago.

The last major problem I had over this a few years back involved the client (who queried every £100 of my fees) offering to pay my £600+ ACCA subscription just so I could sign up just to do his accountant's certificate!

I told him to stop being silly and to tell the lenders/broker the same, or find a new accountant. A week later he had his mortgage offer.

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By Vaughan Blake1
26th Jun 2018 13:02

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!

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Replying to Vaughan Blake1:
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By andrew1211
26th Jun 2018 13:04

Clueless as most are!

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Replying to Vaughan Blake1:
RLI
By lionofludesch
26th Jun 2018 13:08

Vaughan Blake1 wrote:

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.

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By andrew1211
26th Jun 2018 13:07

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).

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Replying to andrew1211:
Tornado
By Tornado
29th Jun 2018 13:33

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.

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By BigBadWolf
26th Jun 2018 14:25

She needs to find a new broker

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By jaffe123
26th Jun 2018 15:41

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.

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Replying to jaffe123:
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By andrew1211
26th Jun 2018 16:01

Idiots!

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By Comptable
27th Jun 2018 10:26

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!

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Replying to Comptable:
Hallerud at Easter
By DJKL
27th Jun 2018 10:37

Might the same not be said of accountants. ☺

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By youngloch
27th Jun 2018 10:38

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.

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Replying to youngloch:
Teignmouth
By Paul Scholes
27th Jun 2018 11:46

Hi Youngloch

Fortunately, I haven't needed to push any clients towards any lender for years, I let them do the leg work.

This one is in Manchester and they have used the broker before (when employed) and seem wedded to him but she's OK to find another.

Thanks for the offer, I'm now in Devon (thank goodness) plus I have a problem with Barclays and who they have invested in over the years, but it was nice to get £10K off them a couple of years back for PPI and a £7 cheque recently for miscalculating bank charges 10 years ago!

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By JD
27th Jun 2018 11:14

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.

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Replying to JD:
RLI
By lionofludesch
27th Jun 2018 11:08

Imho, you are providing the service to the intending borrower, albeit at the request of the broker.

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Profile
By indomitable
27th Jun 2018 11:09

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!

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Replying to indomitable:
Teignmouth
By Paul Scholes
27th Jun 2018 11:50

No nothing like that, the broker just wants her to record as much in divs as possible to bring the SA302 up. I used the £50K salary as an example for her to ask him when, if at all, the lender would have a problem with just looking at the SA320.

She's a lovely client, never been any hassle before but is desp to buy a property.

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By lesley.barnes
27th Jun 2018 12:02

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.

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By Agutter Accounts
27th Jun 2018 12:09

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.

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Replying to Agutter Accounts:
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By andrew1211
27th Jun 2018 12:53

I'd ask what the broker's qualifications are in that case!

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Replying to andrew1211:
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By Agutter Accounts
28th Jun 2018 08:03

Assuming they have any. LOL

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By Open all hours
27th Jun 2018 14:24

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.

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By Open all hours
27th Jun 2018 14:29

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.

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By chancewind
29th Jun 2018 10:44

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

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Replying to chancewind:
Teignmouth
By Paul Scholes
29th Jun 2018 11:31

Hi chancewind - sorry I don't follow, my client is the sole director/owner of her Ltd company and doesn't have a wife?

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