Directors of limited companies face a specific and expensive problem. Take a small salary and modest dividends for tax efficiency, and the majority of lenders will assess you on that figure alone — ignoring the profit sitting in the business. A smaller group of lenders will use your salary plus your share of retained profit instead. For a profitable company, that can double the borrowing available on identical accounts.
The two ways lenders read director income
The common approach is salary plus dividends drawn. The alternative is salary plus your percentage share of net profit before tax, whether or not you took it. Neither is wrong — they are simply different policies. If your company retains profit, the second approach reflects your actual position far better, and knowing which lenders operate it is most of the value an adviser adds here.
What affects how much you can borrow
- Your shareholding percentage — retained profit is apportioned to it
- Whether profit is rising, flat or falling across the years assessed
- How many years of accounts you have — two is standard, three opens more doors
- Director's loan account position
- Whether you have co-directors and how they are remunerated
A note on timing
If a mortgage is likely within the next year or two, it's worth discussing remuneration with your accountant with that in mind. The most tax-efficient way to pay yourself and the most mortgage-friendly way are not always the same, and the trade-off is easier to manage before the accounts are finalised than after.
What to have ready
- Two to three years of finalised company accounts
- SA302s and tax year overviews for the same period
- Business and personal bank statements
- Your accountant's contact details — many lenders will approach them directly