Salary vs Take-Home for Directors

[Russinating]

I've always been a bit befuddled by this and I always forget to ask our accountant because it doesn't really matter.

However when applying for a credit card, or a mortgage, your "salary" is of particular importance. However how does this work when the bulk of your pay is dividends etc?

For example, a director/contractor with salary of £11,850 and dividends of £50,000 (combined £61,850 salary) has a take-home after tax of £53,963.

A regular employee on a salary of £79,000 will have a take-home after tax of £53,835.

So on paper they get paid £17,000 more a year, but have the same take-home (which for a credit card or mortgage etc is what matters). They could technically get a larger mortgage, or a higher credit allowance, despite there being no difference in disposable.

 

[toshj]

I believe so - If I was paid £100k salary or £10k salary and £90k dividends, then my mortgage allowance would be identical. I'm going through a mortgage process at the moment, and this is what I've been told.

 

[dowie]

Well they're really interested in all your income and your expenditure/outgoings etc.. when looking at how much they can lend you not just your salary.

I think contractors etc.. are well established enough that banks should know the deal with regards to dealing with them, you could always check with the bank before they run any credit checks as it would be pointless in them doing so if they already have some rule like you need 3 years of accounts or something and you don't meet that criteria. Of course a broker could help here some regular brokers might well be fine and know the score here, otherwise there are certainly specialist contractor brokers out there too.

 

[ChrisD.]

I always put my companies' annual income as my salary. I've never had any issues borrowing money except for mortgages, where I use an IFA who deals with lenders who are used to contractors. They either want my day rate or my previous three years profits.

 

[Russinating]

I always put my companies' annual income as my salary. I've never had any issues borrowing money except for mortgages, where I use an IFA who deals with lenders who are used to contractors. They either want my day rate or my previous three years profits.

That's much easier and makes a lot more sense when you're the only shareholder (like contractors), but I'm not.

 

[Steedie]

Yeah, put your companies income, much easier. Your salary/dividends can fluctuate depending on what you want to pay yourself a particular month, so it's best just to list what your company brings in

 

[Thecaferacer]

It doesn't really matter what you put on a credit card as they work out for eligibility from a credit check.

Mortgage wise, again it doesn't matter what the gross figure is too much as they will do detailed outgoings to calculate your actual disposable income. A lot of people with high take homes have virtually nothing left after loans, car payments etc.

 

[ultralaser]

You've also got to add in how reliable that income is, that is also a factor on longer term debt like mortgages - and when I've seen some get unstuck. Generally they will ask 'how long have you been working for X', and as a director that is often quite low and can hurt mortgage applications.

 

[Energize]

Yeah, put your companies income, much easier. Your salary/dividends can fluctuate depending on what you want to pay yourself a particular month, so it's best just to list what your company brings in

As stated that's only acceptable if you're the only shareholder and the only person who works there, otherwise I'd put down Microsoft's revenue as my income because I own a few shares in them.