Sole Trader Tradespeople — Accounts and Self-Assessment Income
Sole trader tradespeople — those who trade in their own name without incorporating a limited company — are assessed for mortgage purposes on their self-employment income as declared to HMRC. The basis for this is the SA302 (self-assessment tax calculation) and the Tax Year Overview, both of which can be downloaded from the Government Gateway. Most lenders require two to three years of these documents, supplemented in many cases by the underlying self-assessment returns or accountant-prepared accounts.
The net profit figure — revenue minus allowable expenses — is what most lenders use as the basis for income assessment. This creates an immediate challenge for tradespeople who have structured their affairs to minimise taxable income legitimately, by claiming all allowable business expenses. A sole trader who turns over £80,000 but claims £30,000 in genuine business expenses — materials, tools, van costs, insurance, and so on — has a net profit of £50,000. It is this £50,000 figure that lenders will use, not the £80,000 turnover. For mortgage purposes, it is worth understanding the income figure your tax return will produce before approaching lenders.
The quality and clarity of accounts matters significantly. Accountant-prepared accounts — from a qualified bookkeeper or chartered accountant familiar with the trades sector — are far easier for lenders to assess quickly than a collection of bank statements and rough workings. An accountant who understands mortgage requirements will present the accounts in a format that makes the lender's job as easy as possible, reducing the risk of delays or unnecessary information requests.
Seasonal variation in trade income is common, particularly for outdoor trades such as roofing, landscaping, and general building. Lenders will look at annual income figures rather than monthly ones, so seasonal peaks and troughs are less significant than the overall annual total. Two or three years of consistent or growing annual net profit is the target picture.
CIS — Construction Industry Scheme Income and How Lenders Treat It
The Construction Industry Scheme (CIS) is a HMRC tax scheme applying to contractors and subcontractors in the construction industry. Under CIS, main contractors deduct tax at source — either 20% for verified subcontractors or 30% for those not verified — before paying subcontractors for their work. The gross payment less the CIS deduction is what the subcontractor receives; at the end of the tax year, they claim credit for the deductions made against their tax liability.
For mortgage purposes, CIS income is the gross amount before the deduction is taken — the full value of the work done. This is the figure that appears in the CIS monthly deduction statements issued by the contractor, and it is also the figure that the subcontractor's accountant should use in preparing the self-assessment return. The CIS deductions themselves are a form of advance tax payment, not a reduction in income — a distinction that some lenders need help understanding.
Some specialist lenders have developed specific products for CIS workers that allow income to be evidenced directly from CIS deduction statements rather than requiring two full years of SA302 returns. These products are particularly valuable for tradespeople who have recently become self-employed or who have been working as CIS subcontractors for less than two years. The CIS statements, combined with bank statements showing the regular income deposits, can be sufficient to demonstrate a consistent and credible income stream.
Tradespeople who are both CIS subcontractors and also employ other workers — a small building company owner who is themselves on CIS for work done for larger contractors — will have a more complex accounts picture that clearly separates their own labour income from the business's revenue. A specialist accountant who understands the construction sector is essential in these cases, both for tax accuracy and for producing accounts that lenders can interpret efficiently.
