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A self-employed individual, is someone who pays their own taxes at the end of the fiscal year, there are two main types of self-employed individuals each of which are listed below:
- Sole trader
- Typically refers to an individual working for themselves with no responsibility of paying staff or usually premises. There income is usually calculated within the fiscal year of april to march. Income for self-employed individuals are calculated on a net/profit number with lenders wanting to see as high as a net number as possible in order to calculate an affordable mortgage
- Limited Company
- This refers to a company who is registered at companies house. Any person/s who own a limited company will be listed as a director and will typically pay themselves in a salary and dividends. Majority of lenders will calculate affordability based on the salary and dividends you have paid yourself and will assess your mortgage affordability in a similar way to sole traders by way of averaging your income over the previous two years. If however you are an individual that pays yourself a low or small salary and dividends monthly and annual affordability can be calculated based on retained profits which refers to the money you leave in the business.