Contractor Mortgages and IR35 Rules: What You Need to Know

Welcome to Connely Roberts Mortgages blog! If you’re a contractor navigating the mortgage market, understanding the impact of IR35 rules and legislation is crucial. This blog will guide you through the essentials of contractor mortgages and how IR35 affects your mortgage options.

What is IR35?

IR35 is a tax legislation introduced by HMRC to identify contractors and freelancers who are essentially employees in all but name, often referred to as ‘disguised employees’ under off-payroll working rules. The legislation ensures that such individuals pay the correct tax and National Insurance contributions.

What are the differences between inside and outside IR35 statuses for a limited company?

• Inside IR35: Considered an employee for tax purposes, subject to PAYE, income tax, and National Insurance contributions.
• Outside IR35: Operating as a genuine business, allowing for tax-efficient income distribution through dividends, but without employee benefits like paid leave.

Why were the off-payroll working rules introduced?

IR35 was introduced to tackle tax avoidance by individuals using personal service companies (PSCs) and limited companies to disguise their employment status and benefit from lower tax rates and National Insurance contributions (NICs). By presenting themselves as contractors rather than employees, these individuals could pay significantly less tax, despite performing work similar to that of regular employees. The legislation aims to create a fairer tax system by ensuring that individuals who work in a manner akin to employees pay comparable taxes. Additionally, IR35 helps increase government revenue by closing tax loopholes and clarifying employment status for tax purposes, promoting compliance and reducing ambiguity in the contractor workforce.

How Does IR35 Impact Contractors?

IR35 status affects your net income, which in turn can impact how lenders assess your mortgage affordability, especially for limited company contractors. Contractors inside IR35 may face challenges in proving consistent income, while those outside IR35 can leverage their business earnings more effectively.

Tips for Contractors Applying for Mortgages from High Street Lenders

Contractors applying for mortgages can improve their chances by preparing thoroughly. Ensure that your contracts with the end client are IR35-friendly to avoid complications during the mortgage application process. Start by organising proof of income, such as contracts, and client invoices.

Maintain good credit by paying bills on time and managing debts responsibly. Save for a deposit, as a larger deposit can enhance approval prospects and potentially secure better terms. Consider specialist lenders familiar with contractor incomes and engage a mortgage broker experienced in contractor mortgages to navigate lender criteria effectively. Highlight a history of consistent contracts and future prospects to demonstrate income stability. These steps can streamline the mortgage application process and increase the likelihood of securing a suitable mortgage as a contractor.

Secure your contractor friendly mortgage today

Navigating the complexities of contractor mortgages, especially in light of IR35 regulations, can be challenging. As we are experienced brokers working with contractor-friendly mortgages, we understand the unique financial circumstances contractors face. Let us help you find the right mortgage solution tailored to your needs.

Contact us today for expert advice and personalised mortgage options. Empower your journey to homeownership with confidence, knowing you have a partner who understands the intricacies of contractor finances.

Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

Take the next step towards securing your future—reach out to speak to us today.