Paid the tax-efficient way, and it's counting against you.
Your accountant arranged a small salary and the rest as dividends, which is standard practice. Then a lender looked at your payslip and decided you earn very little. Both things are true at once.
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David Bourne
Why the tax-efficient structure works against you here
A limited company director is usually paid a modest salary up to a sensible threshold, with the rest taken as dividends. It is ordinary, sensible practice and your accountant was right to set it up that way.
The difficulty is that mortgage affordability is usually assessed on what you personally received, not on what the business earned. So a company turning over comfortably, run by someone who deliberately draws little, presents to an underwriter as a low earner. The structure that saved you tax is the structure that shrinks your borrowing.
Nobody tells directors this until they apply, and by then the decision has been baked into two years of filed accounts.
Retained profit — the part that decides it
If you have left profit in the company rather than drawing it, most affordability models simply cannot see it. A minority of lenders will consider share of net profit rather than salary and dividends alone, and for a director with money sitting in the business that single difference can change the answer entirely.
It is not a trick or a loophole. It is a different way of reading the same accounts, offered by a small part of the market. Knowing which part is most of the value in having someone do this for you.
What lenders actually ask for
- Two years of accounts is the usual expectation, though not universal. One year is workable with some lenders and much harder with others.
- SA302s and tax year overviews show what you declared personally. They will not show what the company retained.
- An accountant's reference carries real weight, particularly where the picture needs explaining. A qualified accountant's certificate is worth arranging early rather than under time pressure.
- Consistency matters more than size. Income that rose, fell and rose again invites questions that steady income does not, even where the average is identical.
- A recent dip gets weighted heavily. Many lenders take the lower of the last two years rather than the average, which is worth knowing before you choose which year to apply in.
And then there is the credit file
Directors arrive with adverse credit for reasons that are often structural rather than personal — a business account that went over its limit, a personal guarantee that was called, a period of taking nothing out to keep the company going and missing something personal as a result.
Those reasons are not usually understood by an automated decision. They are explainable to an underwriter, and the explanation belongs in the application from the start rather than in an appeal afterwards.
What to bring
Two years of accounts if you have them, your last two SA302s and tax year overviews, an idea of what has been retained in the business, and an honest account of anything on your credit file. With those I can tell you which part of the market is worth approaching and, just as usefully, which part is not.
Anything that is genuinely an accounting decision — how to draw income, what to retain — stays with your accountant. I will tell you how each option reads to a lender so the two of you can decide with that in front of you.
What directors ask
Will they count my dividends?
Generally yes, alongside salary, usually averaged or taken at the lower of two years. What varies far more is whether retained profit is considered at all.
I've only been trading a year. Any point?
Sometimes. Fewer lenders, more documentation, and it helps considerably if the trade continues something you did before.
Should I pay myself more before applying?
That is an accounting decision with tax consequences, so it belongs with your accountant. I can tell you how each version reads to a lender, which is usually the missing half of that conversation.
Does a business debt show on my personal file?
Not normally, unless a personal guarantee has been called or the borrowing was in your own name. Worth checking rather than assuming either way.
Tell me how you are paid and I will tell you whether any part of the market reads it differently.
Who else is part of this?
Income that arrives in an awkward shape, or a second name on the application, changes which lenders will look.
Guarantor mortgages with bad credit
A guarantor helps with how much you can borrow, not what is on your file.
Buying together when one of you has something on their file
What a joint application really means, and the three routes open to you.
Self-employed with adverse credit
Two difficulties at once, and a smaller group of lenders comfortable with both.