Employment status when applying for credit?

[FrontEnder]

Dunno the policy of all lenders, the specific one i'm on about would indeed refer (rather than decline) the application but you'd still have to demonstrate affordability before they would lend. What i'm saying is that splitting an annual income into 12 equal chunks might not just fly through the system unchallenged.

Oh yes, I agree.

Having the freedom to choose when and how much to pay yourself can also be an advantage here.

[barrydidit]

This probably isn't a reliable check though, so I doubt they would decline based on this. So if that didn't give them the information they needed, they'd probably ask to see bank statement.

Dunno the policy of all lenders, the specific one i'm on about would indeed refer (rather than decline) the application but you'd still have to demonstrate affordability before they would lend. What i'm saying is that splitting an annual income into 12 equal chunks might not just fly through the system unchallenged.

[FrontEnder]

You need to be careful with dividing total income by 12 (not sure that there’s much of an alternative, but understanding why might help). A lender should seek to demonstrate that the repayment of any credit facility they have extended is affordable. One way to do this is to validate the customers declared income with a reference agency (CallCredit’s Affordability Report, for example). This will look at monthly turnover of your current accounts and return an indication of whether they can see the money the applicant declared or not (also within 10% iirc). The upshot is that if you’ve taken your dividends in April, bought a new car and spend the rest of the year living on beans it’s going to be difficult for a CRA to validate your income based on recent data. Just something to be wary of.

This probably isn't a reliable check though, so I doubt they would decline based on this. So if that didn't give them the information they needed, they'd probably ask to see bank statement.

[VectraMan]

From one 78 to another, never say you are self employed as this suggests plumber, newsagent etc etc, income being more cash based. Put yourself down as employed, the company you are employed by being your ltd company, with monthly combined salary/dividend earnings.

Maybe to most "self-employed" better describes what we are, but I think "self-employed" has a specific meaning; i.e. sole trader. And we aint one of them.

Though I wonder if they then do a credit check on your employer and discover that you work for a pokey one man company with no assets and one customer.

[kaiser78]

I just wondered what others put when applying for things like a new credit card as their employment status?

Would you put yourself as employed or self employed?

Also would you put your income as total of salary + dividend for both options?

From one 78 to another, never say you are self employed as this suggests plumber, newsagent etc etc, income being more cash based. Put yourself down as employed, the company you are employed by being your ltd company, with monthly combined salary/dividend earnings.

[LondonManc]

The problem is that providing our gross income doesn't equate to the same perm gross.

So if you're on the most tax efficient LTD contractor gross income draw (circa £40k), it assumes you're getting taxed like a £40k perm, which as we know isn't the case, it's closer to 70k.

£40k assumes you're leaving everything else in. While it's more costly to get the rest out, there is a good case for taking more out if you have a warchest anyway. I'd rather take extra out to invest outside of the corporate account (yielding its massive 0.0% interest) and get it working properly for me.

[barrydidit]

I've just had this. Most mention income which is pretty clear. One of the banks asked for salary and no other option to put dividend income in. Spoke to them and they were happy for salary to cover dividend plus wage but I had to divide it up in to a monthly figure.

You need to be careful with dividing total income by 12 (not sure that there’s much of an alternative, but understanding why might help). A lender should seek to demonstrate that the repayment of any credit facility they have extended is affordable. One way to do this is to validate the customers declared income with a reference agency (CallCredit’s Affordability Report, for example). This will look at monthly turnover of your current accounts and return an indication of whether they can see the money the applicant declared or not (also within 10% iirc). The upshot is that if you’ve taken your dividends in April, bought a new car and spend the rest of the year living on beans it’s going to be difficult for a CRA to validate your income based on recent data. Just something to be wary of.

[lorryman]

To keep it short I always say Employed.
The income is the Gross amount before tax on your self assesment i.e employment income, savings, rental and dividends etc..

If they really need to confirm your income you can always download your SA302 from your tax account.

[northernladuk]

Yeah that's true but in most cases it more than covers the lending criteria so not really an issue. It will only become a problem when you want more and the cut off is closer at which case I guess you'll have to speak to the lender and explain the situation.

[blackeye]

The problem is that providing our gross income doesn't equate to the same perm gross.

So if you're on the most tax efficient LTD contractor gross income draw (circa £40k), it assumes you're getting taxed like a £40k perm, which as we know isn't the case, it's closer to 70k.

[FrontEnder]

It depends what's on the application. Normally they ask something like "gross annual income" and "net monthly income". In which case, dividends + salary + anything else counts as income. Sometimes they ask for it in more details and ask for salary and other income, in which case you'll need to split it.

As for employment status, again, not all applications are the same. I moved house recently and it actually had "contractor" as one of the options. I selected employed and gave my accountant's details as a reference though.

Pick the answer you think gives you the best chance, but be honest. As long as what you answer reasonably covers what you do, then you're ok.

[vwdan]

Employed (The law is very clear that self employment is something different) and Salary + Dividends, because that's what they're really after.

[Lance]

Employed.

Combine both salary and dividends as income as that's exactly what they are (income = money coming in).

[northernladuk]

I've just had this. Most mention income which is pretty clear. One of the banks asked for salary and no other option to put dividend income in. Spoke to them and they were happy for salary to cover dividend plus wage but I had to divide it up in to a monthly figure.

[SouthernManc78]

I just wondered what others put when applying for things like a new credit card as their employment status?

Would you put yourself as employed or self employed?

Also would you put your income as total of salary + dividend for both options?