Contracting sits awkwardly between employment and self-employment, and the lenders who understand it treat it as its own category. Rather than picking through company accounts, they take your day rate, multiply it out across a working year, and lend against the result. For a contractor drawing a modest salary from a limited company, this is usually far more generous than any accounts-based assessment — and it can apply even in your first year of contracting.
How day-rate assessment works
The usual calculation takes your daily rate, multiplies by the days you work in a typical week, then by around 46 to 48 weeks to allow for gaps and holiday. That annualised figure is then treated much like a salary. For most professional day rates it produces a notional income well above the modest salary an accounts-based assessment would use, against which normal income multiples then apply.
What lenders want to see
- A current signed contract showing the rate and term
- Usually twelve months' contracting history, though some accept six
- A record of renewals or back-to-back contracts
- Evidence you were in the same line of work beforehand, if you're newly contracting
- Your limited company or umbrella arrangement details
Inside or outside IR35
IR35 status affects how you're paid rather than whether you can borrow. Contractors inside IR35 paid through an umbrella company are often assessed on payslips, more like an employee. Those outside IR35 through their own limited company are the classic day-rate case. Both are workable; they simply route to different lenders.
Gaps between contracts
Short gaps are normal and lenders expect them. What they look for is a pattern of continuous work rather than an unbroken record. A gap of a few weeks between engagements rarely causes a problem; several months without work in the last year will narrow the options.