Hi A client has asked me to provide a mortgage reference, which I have no problem with. The problem though is that the reference asks for income declared for tax purposes. In this case, the client has had losses from earlier years to offset against income for the period covered by the reference, so his taxable income is nil, even though there is a trading profit. So what goes on the return? All replies welcome.
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His result for the period is the trading profit you say he has made. So that is what you report.
The new SA302 format shows the total income AND the loss relief b/fwd separately, so should not be an issue.
Until Santander want the SA302's and that shows something different :)
In which case just attach the profit adjustment computation - which is a reconciliation of the actual profit with the tax adjusted one.
Your question just illustrates the stupidity of the mortgage lenders now relying on SA302's - this is a regular problem I come across, say for example a ST with normal profit of 35k buys a van one year for 20k and claims AIA - a vast difference between accounting profit and the SA302 figure, but try and explain that to the lender
I find that HMRC and lenders are generally poles apart in their requirements and understanding of each others information.
SA302's and tax overviews appear to me to be a tick box compliance exercise and not much more. Too often the management of loan applications lack common sense and intelligent assessment.
To answer your query the periods earnings are the relevant figures and should not be affected by losses brought forward, unless the loss making periods are part of the income periods being considered, in which case the average earnings will be effected.
We get a number of requests for references (usually mortgage or rental ) that ask questions that are either ambiguous or don't make any sense in relation to the client's circumstances. We nearly always have to add caveats with an accompanying letter but these very rarely if ever invoke a response. It seems to me that it is a box ticking exercise and they don't really care what the reference says as long as they get one.