Halifax updates contractor mortgage policy to align with IR35 rules
Halifax has adjusted its mortgage affordability and income criteria for contractors who work on an employed basis to reflect changes to government tax legislation under IR35.
As part of the changes, the bank is asking additional questions regarding mortgage affordability when verifying income for contractors on an employed basis.
Where an applicants income comes from a contract and they are not employed permanently, they are classed as a contractor. This will include individuals who are self-employed and pay their own tax, those who are employed via an umbrella company who deduct their tax and people who are essentially employed but on a fixed / short term contract, e.g. 12 months.
Contractors can be treated as self-employed or employed for income verification purposes, and the following is not changing:
Halifax will treat borrowers as self-employed if
- They pay their own tax or if they have more than one contract.
- They have set up a limited company and employs other contractors.
- Tax is paid by the company they work for.
Additionally, to be treated as employed, the customer must have either have 12 months or more continuous employment, with six months of the contract remaining or two years continuous service (for the last two years as at the date of application) in the same type of employment.
The bank is treating a contractor as employed for income verification if they pay their own tax, or it is deducted by an umbrella company (including IR35) and earn more than £500 a day or £75,000 a year.
Have there been changes to Members of Construction Industry (CIS)?
The latest three months payslips and corresponding bank statements must be used to evidence income and an average used. The average amount is then to be used to calculate the income based on a 46 week year, for example multiply the average monthly figure using the latest three payslips x 12, divide by 52 weeks and multiply by 46.
Call Trinity Financial on 020 7016 0790 to secure a contractor mortgage or book a consultation