Self-employed and company-director clients
How the income evidence on these cases points to pension, protection and business planning needs, how pay decisions affect borrowing, and when to introduce the client to Equity & General.
How the income evidence on these cases points to pension, protection and business planning needs, how pay decisions affect borrowing, and when to introduce the client to Equity & General.
To assess a self-employed borrower, you gather tax calculations, tax year overviews, business accounts and, for a director, the company's accounts and the director's share of profit. Those papers show how the client earns. They also show what the client has done, or not done, about pensions, protection and the business's future.
A director paying themselves this way may be making no pension contributions at all, or contributions through the company that do not appear on their personal tax return.
Money left in the company is part of the director's wealth. Some lenders will consider it for affordability. It is also money that could be paid into a pension through the company, which is a decision for the client with their accountant and a planner.
No personal pension contributions on the tax return, year after year.
The accounts show who owns the business. A business with more than one owner raises the question of what happens to each owner's share on death.
Record what the papers show, as facts. Do not tell the client they should be paying into a pension, or how they should take their pay. Those are pension and tax questions.
For a company director, the way the company pays them changes what lenders will count as income. A lender that assesses salary and dividends sees a different figure from one that assesses salary and share of net profit.
Employer pension contributions reduce the company's profit, because the company pays them before tax. For a lender that assesses net profit, a large company pension contribution can lower the income figure. For a lender that assesses salary and dividends, it may make no difference. This is a point where mortgage advice and pension planning meet.
You advise on which lender suits the client's income as it stands. If the client is planning a large pension contribution through the company, or a change in how they take pay, find out the timing. Ask the client to involve their accountant. Where the client wants advice on the pension contribution itself, introduce them to Equity & General. Agree with the planner and the accountant which year's figures the mortgage application will use.
Self-employed applications usually rely on the last two years of figures, sometimes one. A client planning a large mortgage in the next year or two should know that their next set of accounts will be read by a lender.
You can tell the client which figures a lender will look at and what income the lending needs. You cannot advise on how to arrange their pay or pension contributions to reach it. Point them to their accountant for tax and pay, and offer an introduction for the pension.
Wording you can use“Your next accounts will be the ones the lender reads. How you take your pay and whether the company pays into a pension both affect the figure. Your accountant can advise on the pay. If you would like advice on the pension side, I work with Equity & General and can ask one of their planners to speak to you and your accountant together.”
A self-employed client has no employer sick pay. Income protection with a short deferred period, or savings set aside to cover a longer one, is part of the protection review. Where your firm holds the permission, that advice is yours.
For a director, relevant life cover paid by the company and key person cover on the director's life may suit. Both are protection, and both are yours to advise on where you hold the permission. What happens to the director's shares on death, and whether the other owners can afford to buy them, is a question for a planner and a solicitor. Shareholder protection can fund a purchase, and the owners need an agreement for the purchase to take place.
A director may plan to fund a deposit by taking money out of the company. Money taken out of a company is taxed as salary or dividends, or treated as a director's loan, and each has its own tax and lending consequences. The lender will want to see the source of funds and may want to see that any loan has been repaid. The tax is a question for the accountant.
A client aged fifty-five or over may plan to use tax-free cash from a pension. The minimum age at which pension benefits can be taken rises to fifty-seven from 6 April 2028. Taking money from a pension can affect future pension contributions and the income the client has in retirement. That decision needs pension advice before the money is taken out, and before you submit an application that depends on it.
Record where the deposit comes from, and if it involves a pension, record that the client was offered an introduction before the withdrawal.
Offer an introduction to Equity & General when the case shows any of these.
Where an accountant prepares the figures you rely on, ask the client whether you may speak to the accountant about the timing of the accounts. Record their agreement.
Where the client is introduced to Equity & General, the planner will want to work with the accountant on pension contributions and pay. Tell the planner who the accountant is, with the client's consent, so the planner can contact them directly.
Keep each adviser to their own subject. The accountant advises on tax and how the client takes pay. The planner advises on pensions and investments. You advise on the mortgage and protection. When the client asks you a question that belongs with one of the others, tell them who to ask and record that you did.
Raise the introduction once the lending plan is agreed. Use a fact from their own papers.
Wording you can use“Your accounts show the company has built up profits and has not paid into a pension for you. Whether it should is a pension and tax question, which is outside what I advise on. I work with Equity & General, whose planners advise company directors on it, working with your accountant. Would you like me to put you in touch?”
Recognising vulnerability on a mortgage case, deciding when to make an introduction, and handling consent, family and attorneys.
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The line between mortgage and protection advice and pensions and investment advice, with the client questions that fall either side of it.
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What appointed representative firms should check in their network agreement before making introductions to an outside adviser.
Read itYour firm keeps the mortgage and protection advice. Equity & General gives the pension, investment and estate planning advice, and a named partnership manager sets the arrangement up with you.