Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.
Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.
Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.
The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]
Being a contractor put you in a unique group when it comes to financial services. Umbrella Compare receives regular questions in regard to contractor mortgages, especially how best to go about obtaining a mortgage when you're a contractor.
As part of our service to Contractors, we researched the market place to find the best provider of mortgages for contractors. Umbrella Compare has teamed up with Freelancer Financials, a specialist firm of mortgage advisers, who help contractors secure mortgages.
Here are our most common questions asked by contractors when considering a mortgage.
Unlike a standard mortgage for a small business owner, in which affordability is based on a narrow measure of salary and dividends drawn, a contractor mortgage is based on your annualised current contract rate.
This allows most contractors to borrow more than they would be able to with a standard mortgage while choosing to take a smaller salary for tax planning purposes. To calculate your borrowing, multiply your current contract rate by the number of days contracted to work in a week and then by 48 weeks in a year.
You can generally secure a mortgage of around 5 times this total. Therefore, a contractor on £400 per day could potentially borrow £480,000 to purchase or remortgage their home. With contract-based underwriting it also saves you the time and hassle of providing high street lenders with two to three years accounts to prove your earnings. All you need is a signed copy of your contract, CV and 3 months bank statements.
Freelancer Financials are Contractor Mortgage Specialists that deal with senior mortgage underwriters at the lender's head office so will be able to secure you a mortgage based on your contract rate even if you have just started contracting.
It's a common misconception that contractors will need to pay a bigger deposit than an employee. This is not the case at all, however, you will need a minimum deposit of 10% and there are a number of lenders like Halifax and Northern Rock offering competitive rates. Clearly, the larger the deposit you put down, the more competitive the interest rates get.
This will normally be the case when you approach a bank or building society directly for your mortgage because they don't understand your contractor status and will automatically highlight your mortgage application as higher risk and ask for continuity of earnings.
Lenders request your accounts to try to prove your disposable income and hence affordability, but these will rarely reflect your true earning power. Instead, your mortgage can be based on a multiple of your contract rate alone.
A contract mortgage specialist can secure a mortgage on the same interest rates as a standard employee. Currently, the best rates are available to contractors are at 85% LTV, but even with a 5 per cent deposit, it's possible to secure rates of around 3.19%. However, this will be subject to having a good credit score.
I've used self-certification mortgages in the past, are these still available?
Not anymore, self-cert mortgages were removed by the FCA.
Freelancer Financials helps contractors in your situation on a daily basis. Having established strong relationships with the senior underwriters at high street lenders like Halifax, Northern Rock, Clydesdale Bank, your application will be approved quickly and without hassle.
If you approach the same lenders directly then you will deal with staff that don't understand your contractor status and insist on you providing three years' accounts. Contractors that have recently started contracting will most definitely struggle to secure a mortgage direct.
The more failed attempts you suffer on the high street, the worse your prospects get, as each unsuccessful application leaves a footprint on your credit history. It is important to get it right first time around.
I need to buy quickly to fit with the start of my new contract - how long does the process normally take?
As soon as you have a copy of your signed contract, the first step is to contact Freelancer Financials for a detailed summary proposal and Key Facts Illustration. They can normally secure you an agreement in principle (AIP) within 24 hours of receipt of your application.
An Agreement in Principle or Mortgage Promise as it is called by some lenders can provide you with important bargaining power when dealing with estate agents. With most of the high street lenders that we work with, the process can take 4 weeks from start to completion. Don't forget to invite us to the housewarming party!
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It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.
Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].
Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.