As a self-employed individual, understanding the difference between pre-tax and post-tax profit is crucial to running a successful business.
In simple terms, pre-tax profit is the amount of money your business earns before taxes are deducted, while post-tax profit is the amount of money your business earns after taxes have been deducted.
When self-employed people apply for a mortgage, lenders typically require them to provide information about their income, including their pre-tax and post-tax profit. This is because lenders need to assess the borrower’s ability to repay the mortgage, and pre-tax and post-tax profit provide different measures of the borrower’s income.
Pre-tax profit
Pre-tax profit refers to the amount of money a self-employed person earns before taxes and other expenses are deducted. This figure is often used to evaluate the overall financial health of a business and is a good indicator of the borrower’s earning potential.
Post-tax profit
Post-tax profit, on the other hand, is the amount of money a self-employed person earns after taxes and other expenses are deducted. This figure is a better indicator of the borrower’s actual income, as it reflects the amount of money, they have available to cover their expenses and make mortgage payments.
Why it’s important
Lenders typically use post-tax profit to determine how much a self-employed borrower can afford to borrow for a mortgage. This is because post-tax profit provides a more accurate picture of the borrower’s income and expenses, and allows lenders to assess the borrower’s ability to repay the mortgage based on their actual income.
In conclusion, providing information about pre-tax and post-tax profit is essential for self-employed people applying for a mortgage, as it helps lenders to make informed decisions about their ability to repay the loan.
If you are a company director, self-employed sole trader or a contractor, it would be very beneficial to speak with us. We can help you find out how much you can borrow and identify the best lending options available to you, assisting you to navigate the mortgage application process with our support and expertise.
*Please note: Your home maybe repossessed if you do not keep up repayments on your mortgage. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.