Two definitions of the same income
A limited company director with a healthy business often takes a small salary, modest dividends and leaves the rest of the profit in the company. That is normal tax planning, but it splits lenders into two camps. The majority assess salary plus dividends, the money actually drawn. A smaller group, including several mainstream names, assess salary plus the director's share of the company's net profit, whether it was drawn or not. Same director, same company, two very different answers.
A worked example
A director owns 100% of a company. She pays herself a salary of £12,570, takes £30,000 in dividends, and the company retains the rest of its £70,000 net profit after corporation tax.
A salary plus dividends lender sees income of £12,570 plus £30,000, which is £42,570. At 4.5 times income that supports a loan of £191,565.
A salary plus net profit lender sees £12,570 plus her 100% share of the £70,000 net profit, which is £82,570. At the same 4.5 times that supports £371,565.
The gap is £180,000 of borrowing capacity, produced entirely by which definition the lender's policy uses. Nothing about the business changed. This is the single most common reason a director is told wildly different figures by different lenders.
Averages, trends and the latest year
Most lenders average the last two years. If the latest year is lower, lenders typically use the lower figure and ask why. If the latest year is higher, some use the average, some use the latest year, and a few will use the latest year only where the accountant confirms the growth is sustainable. Directors with one strong recent year and a weaker year before it are another case where lender choice moves the answer materially. If the company has only ever filed one year, that is a different problem with its own solutions, covered in our guide to getting a mortgage with one year of accounts.
What lenders want to see
- Two years of finalised accounts, or the SA302 tax calculations with matching tax year overviews.
- An accountant's reference. Lenders using net profit lean on this heavily, and most specify a qualified accountant.
- Company and personal bank statements, typically three months, to evidence the drawings pattern.
- Shareholding percentage, because net profit is apportioned by ownership share. A 50% shareholder of the same company above would be assessed on £12,570 plus £35,000.
Retained profit and pension contributions
Retained profit is the usual sticking point, but it is not the only adjustment that varies. Some lenders add back the director's pension contributions when assessing affordability, some do not. Car allowances, use of home and other add backs are treated inconsistently. Where a case is marginal, these small policy differences decide it, which is why the accounts are worth reading against a specific lender's policy rather than in the abstract.
Directors buying investment property
Where the director is buying a buy to let, personal income matters less, because the loan is assessed mainly on the rent. Most buy to let lenders want a minimum income, commonly £25,000, or simply evidence of earned income, and the interest coverage ratio does the rest. Our buy to let affordability calculator shows what a given rent supports. Directors buying through a company rather than personally have a separate set of questions, SPVs, SIC codes and personal guarantees among them, which we cover in our guide to buy to let through a limited company.
What slows director cases down
The usual delays are accounts still in draft at application, dividends on the application that do not match the accounts, an accountant slow to return references, and a latest year that dipped without a written explanation. A one page note from the accountant explaining a dip, a large one off cost or a change in dividend policy resolves most underwriter queries before they are raised, and preparing it up front is cheaper than a three week back and forth mid application.
Related questions
Do lenders count retained profit in the company?
Some do. A minority of lenders, including several mainstream names, assess salary plus the director's share of net profit whether drawn or not. Most lenders only count salary plus dividends actually taken. The difference can change the maximum loan by six figures.
Is director income averaged over two years?
Typically yes. If the latest year is lower, lenders usually work from the lower figure. If it is higher, policy varies between the average and the latest year, sometimes with an accountant's confirmation that growth is sustainable.
What if I only draw a small salary and minimal dividends?
On a salary plus dividends basis the assessable income will be low regardless of how profitable the company is. Lenders that use salary plus net profit assess the underlying profitability instead, so criteria selection is the practical fix rather than changing how you pay yourself.
Does my shareholding percentage matter?
Yes. Net profit is apportioned by ownership, so a 50% shareholder is assessed on half the company's net profit plus their salary. Dividends are counted as actually paid to the individual.
Do I count as self employed if I own 20% of the company?
Most lenders treat directors holding around 20% to 25% or more as self employed, which means accounts or tax calculations rather than payslips. Below that threshold many lenders assess the applicant as employed on salary alone.
Talk it through with us
Every case is different. Call us, message us on WhatsApp, or send us the basics and one of our team will come back to you about limited company director income, usually the same working day.