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Friday 10 January 2025
Friday 10 January 2025
Friday 10 January 2025
Friday 10 January 2025
A sole trader is self-employed—the business and the individual are legally the same, meaning you're personally responsible for all debts and taxes. When it comes to mortgages, lenders look at your net profit, which appears as 'profit from self-employment' on the SA302 tax calculation. This is what they use to assess your income—not your turnover, and not your gross earnings.
Key Points About Sole Trader Income for Mortgage Applications
Net Profit Consideration
One of the biggest questions we get is: why do lenders use net profit for self-employed income but gross salary for employed applicants? The truth is, they’re actually using the same thing! The net profit figure used for self-employed applicants is the profit left after business running costs but before tax—so it's not net of tax, just net of expenses.
Tax Year Structure
The UK tax year runs from April to April, meaning the income used for mortgage assessments is the income declared at the end of each tax year.
Since the latest tax return reflects the previous year's earnings, lenders are looking at historical income rather than real-time earnings. This is important because it means that if your income has increased in the current year, it may not yet be reflected in your mortgage application.
Proving Sole Trader Income
The easiest way to prove your income is through HMRC tax documents:
Tax Calculation (SA302): Shows profit from self-employment and the tax due.
Tax Overview: Supports the tax calculation by confirming the tax position (i.e. whether tax has been paid or is outstanding).
Most lenders require both of these documents together to verify income.
Some lenders also accept an accountant’s certificate, which is a personalised template provided by the lender and completed by your accountant.
Occasionally, lenders might ask for business bank statements covering 3-6 months to check that you're still trading at a similar level—this is because your latest tax return is always based on income from the previous year.
How Lenders Assess Income
Generally, lenders will look at the latest two years’ income and either:
Average the two years’ figures.
Use the most recent year’s income if it is lower.
The most recent tax return should not be more than 18 months old. By August, if your tax return (for the year ending April) hasn’t been completed, lenders will likely start requesting it—and it will almost always be required by October.
Lending Flexibility
Some lenders still allow you to use the most recent year's income rather than averaging it out, which is useful if your earnings have increased.
While many lenders require at least two years’ income history, there are still options for those who’ve been self-employed for less than two years—some lenders will accept just one year’s tax return, making it easier for newer sole traders to get a mortgage.
Final Thoughts
There’s a misconception that getting a mortgage as a sole trader is difficult, but in reality, it’s often much more straightforward than people think. Most lenders have a really sensible attitude towards self-employed income, and as long as you have the right documents—your tax calculations and tax overviews—you’ll be in a strong position to prove your earnings. There’s plenty of flexibility out there, and with the right approach, securing a mortgage as a sole trader is absolutely possible!
A sole trader is self-employed—the business and the individual are legally the same, meaning you're personally responsible for all debts and taxes. When it comes to mortgages, lenders look at your net profit, which appears as 'profit from self-employment' on the SA302 tax calculation. This is what they use to assess your income—not your turnover, and not your gross earnings.
Key Points About Sole Trader Income for Mortgage Applications
Net Profit Consideration
One of the biggest questions we get is: why do lenders use net profit for self-employed income but gross salary for employed applicants? The truth is, they’re actually using the same thing! The net profit figure used for self-employed applicants is the profit left after business running costs but before tax—so it's not net of tax, just net of expenses.
Tax Year Structure
The UK tax year runs from April to April, meaning the income used for mortgage assessments is the income declared at the end of each tax year.
Since the latest tax return reflects the previous year's earnings, lenders are looking at historical income rather than real-time earnings. This is important because it means that if your income has increased in the current year, it may not yet be reflected in your mortgage application.
Proving Sole Trader Income
The easiest way to prove your income is through HMRC tax documents:
Tax Calculation (SA302): Shows profit from self-employment and the tax due.
Tax Overview: Supports the tax calculation by confirming the tax position (i.e. whether tax has been paid or is outstanding).
Most lenders require both of these documents together to verify income.
Some lenders also accept an accountant’s certificate, which is a personalised template provided by the lender and completed by your accountant.
Occasionally, lenders might ask for business bank statements covering 3-6 months to check that you're still trading at a similar level—this is because your latest tax return is always based on income from the previous year.
How Lenders Assess Income
Generally, lenders will look at the latest two years’ income and either:
Average the two years’ figures.
Use the most recent year’s income if it is lower.
The most recent tax return should not be more than 18 months old. By August, if your tax return (for the year ending April) hasn’t been completed, lenders will likely start requesting it—and it will almost always be required by October.
Lending Flexibility
Some lenders still allow you to use the most recent year's income rather than averaging it out, which is useful if your earnings have increased.
While many lenders require at least two years’ income history, there are still options for those who’ve been self-employed for less than two years—some lenders will accept just one year’s tax return, making it easier for newer sole traders to get a mortgage.
Final Thoughts
There’s a misconception that getting a mortgage as a sole trader is difficult, but in reality, it’s often much more straightforward than people think. Most lenders have a really sensible attitude towards self-employed income, and as long as you have the right documents—your tax calculations and tax overviews—you’ll be in a strong position to prove your earnings. There’s plenty of flexibility out there, and with the right approach, securing a mortgage as a sole trader is absolutely possible!
