In advance dividends for mortgage?

by Readers Question

16:48 PM, 10th July 2017
About A year ago

In advance dividends for mortgage?

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In advance dividends for mortgage?

I’m writing with a question, as there is nowhere I can get the answer.

I’m interested in a First Time Buyer Mortgage and I’m a director of my own company for the last 4 years.

I have Annual Accounts for 2016 already, and it’s not showing much for dividends taken.

Now to be able to take the right mortgage I have to declare right salary from company, self employment and dividends and show it on the Self Assessment.

Can I declare dividends in advance for the end of company year 2017 when it comes to personal Self Assessment for 2016/17?

How would the banks look at this situation?

I would be grateful for any answers.

Thank you

Michael



Comments

Neil Patterson

16:50 PM, 10th July 2017
About A year ago

Hi Michael,

I am not a qualified and insured accountant, but you can only declare a dividend if the accounts show and support that level of profit.

Once you have declared that dividend then you will be liable for the personal tax on it.

Paul Mullally

11:36 AM, 11th July 2017
About A year ago

Michael,
You also need to be aware that if you vote dividends which your company cannot legally afford, then they will be deemed "illegal" from a HMRC perspective. As Michael states, dividends are effectively profit sharing and as such are not guaranteed. If you vote them you have to pay the tax and even then they can be declared illegal at a later date.

The best you can hope for is to provide 3 years of accounts to your Mortgage Provider and if the dividend income is consistent over that period, they may be considered. However, they may not include them the same as salary and may not apply the same "multiples" calculation on them.

Good luck...Paul

Wayne Hoban

12:42 PM, 11th July 2017
About A year ago

Have you looked at the lenders that will take salary and net profit for the affordability assessment, rather than salary and drawn dividend? Probably worth speaking to a good mortgage broker.

Laura Delow

18:10 PM, 11th July 2017
About A year ago

For dividend payments to show in your 2016/17 self assessment, they need to have been paid to you before 5th April 2017. However assuming for the moment dividend not yet been paid during your 2017 company trading year, this doesn't matter if you use a lender that uses your gross salary plus your share of the pre-tax operating profit as your income (if you don't own 100% of the business then whatever % you own of the business eg 70% = 70% of the pre-tax operating profit will be used). If your salary + your share of the pre-tax operating profit is equal to or greater than the previous year, they will average this over 2 years. If lower than the previous year they will use the most recent figures. No Accounts are required as the lender sends your accountant an Accountant's certificate to complete as long as your Accountant belongs to a recognised qualified body. If not then you need your Accountant to find a qualified Accountant who is prepared to check the Accounts & complete the Accountants Certificate & it is this Accountant's detail that goes on the application. Subject to how much mortgage borrowing your salary + pre-tax operating profit less commitments will support & assuming no other hidden gremlins, you can borrow up to 95% of the purchase price (subject to valuation) unless a new build where it's restricted to 85% loan to purchase value. I've copy/pasted below the information requested on the Accountant's certificate FYI. Meanwhile as a First Time Buyer have you taken advantage of the Help to Buy ISA?
ACCOUNTANT’S CERTIFICATE
APPLICATION REFERENCE – XXXXXXXX
Client name: Business name
Date business established?
Nature of business?
How long have you acted for the client?
Position held by client?
Please complete this section for Sole Trader or Partnerships - see below for Limited Companies
For Year Ending __/__/__ & previous Year Ending __/__/__
- Year ending Turnover Gross profit Net profit* (loss) before drawings
- Applicant’s share of net profits (loss)
- Balance of capital account
- Applicant’s drawings
Please complete this section for Limited Companies (please complete all boxes, we cannot accept draft figures)
For Year Ending __/__/__ & previous Year Ending __/__/__
- Year ending Turnover Net profit* (loss) before taxation
- % of shares held by applicant
- Applicant’s salary or remuneration
- Applicant’s dividends received
- Total assets less total liabilities
* Have net profits decreased in the last financial year? Yes/No
* If ‘Yes’ what is the projected net profit for next financial year? £
* Why did net profits decrease?
* Is there a pension contribution that is deducted before arriving at the net profits? Yes/No
* If ‘No’ what is the amount paid per calendar month? £
* Is the business net profit sustainable at the current level going forward? Yes/No
Accountant’s name: Qualifications:
Signature: Date:
Recognised Qualifications: ACA, FCA, CA, ACCA, FCCA, AAPA, FAPA, ACMA, FCMA, MAAT, FMAAT, AAIA, FAIA, AFA or FFA.
If you do not hold one of these qualifications we will require SA302s and the Tax Year Overview for Sole Traders or Partnerships.
For Limited Companies, the accountant’s certificate must be reviewed and signed by an accountant with a recognised qualification.
Accountant’s practice stamp (if none available please send accompanied by a covering letter on your company’s letterheaded paper):
Hope this helps

Michal P

19:48 PM, 11th July 2017
About A year ago

Reply to the comment left by "Laura Delow" at "11/07/2017 - 18:10":

Hi Laura,
Thank your this complete answer. I have heard that it's possible to be exempt from having a Quallified Acountant if you own a small company and you are doing the Accountant job by yourself. Is that true? Thanks again

Laura Delow

7:50 AM, 12th July 2017
About A year ago

Hi Michael. Yes this is correct but for Ltd Cos if using a lender that is prepared to use pre-tax operating profit + salary vs dividend + salary, you must have an Accountant with a recognised qualification. This isn't the only criteria eg they won't lend if the Ltd Co is showing a negative net worth in the last 2 years or made a loss within the last 2 years. A few Ltd Co clients of mine have taken small dividends yet show much higher pre-tax operating profits thus allowing them to raise the required mortgage amount. There are a handful of lenders using pre-tax operating profit all with slightly different criteria but what I've stated above is quite common across the board.

Lucie Wade

9:09 AM, 12th July 2017
About A year ago

Hi Michal
Try virgin and Coventry as starters, they both use salary and pre tax profit and have generous multiples. Coventry also try and use the the latest years figures without averaging where they can. If there's any late payments or extra income you want to use try Maghellan, they are extremely flexible as is Metro bank.
Good luck
Lucie (owned mortgage company 18 years)

Michal P

9:39 AM, 12th July 2017
About A year ago

Reply to the comment left by "Laura Delow" at "12/07/2017 - 07:50":

Thanks Laura, So I'll be fine. My company is Ltd and nothing wrong with the books :). Thanks!

Michal P

9:40 AM, 12th July 2017
About A year ago

Reply to the comment left by "lucie wade" at "12/07/2017 - 09:09":

Thanks for the tip!


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