The Impact of IR35 on Contractor Mortgage Applications
The Impact of IR35 on Contractor Mortgage Applications
Blog Article
IR35 legislation has changed how contractors work and how they’re paid. But it has also created challenges when applying for a mortgage. Understanding IR35’s impact can help you prepare for a smoother mortgage journey.
1. What Is IR35?
IR35 is a set of tax rules that determine whether a contractor is truly self-employed or effectively working as an employee. If you fall “inside IR35,” your income is taxed at source, similar to a permanent employee. If you’re “outside IR35,” you have more control over how you pay yourself through your limited company.
2. How IR35 Affects Income Structure
When you're inside IR35, you may no longer draw income through dividends and might receive a fixed salary through an umbrella company. This change in payment structure can confuse traditional lenders who don’t fully understand contractor arrangements. Your income may appear lower, even if your take-home pay hasn’t changed significantly.
3. Documentation Becomes More Complex
Contractors affected by IR35 must now show different types of documentation. This may include:
Payslips from an umbrella company
Contract details and working patterns
Proof of consistent contract renewals
SA302s and tax overviews (if still relevant)
The key is to clearly demonstrate your income, whether inside or outside IR35.
4. Specialist Lenders Can Help
Mainstream lenders may struggle to understand IR35 income structures. However, specialist lenders and contractor-friendly mortgage brokers deal with these scenarios regularly. They can interpret your income correctly and help present your case clearly to underwriters.
5. Stay Transparent and Prepared
Make sure you understand your IR35 status and how it affects your finances. Lenders appreciate transparency. If you’re inside IR35, explain your role, payment method, and contract history.
Conclusion
IR35 doesn’t stop contractors from getting a mortgage—it just adds complexity. By staying informed about your IR35 status and working with the right broker, you can still access competitive mortgage options tailored to your circumstances.