As a sole trader, there is no legal separation between you and your business, so a lender looks at your net profit rather than your turnover, and any business debts that have gone wrong usually show on your own personal credit file. Combined with adverse credit, this means an adviser needs a clear picture of both how the business performs and exactly what is on your file and why.
This page focuses on the sole trader detail that sits underneath our general page on self-employed bad credit remortgages: how net profit is calculated, why business debts are personal, and what to do if your accounts are not prepared by an accountant.
On this page
This page covers
- Employment
- Self-employedLenders commonly ask for tax calculations and accounts covering one or more years.
Read the main guide: Remortgaging when you are self-employed and have bad credit
In short
- Lenders usually use net profit, not turnover, either averaged over 2 years or based on the latest year.
- Because there is no legal separation, unpaid business debts and business CCJs are personal, and appear on your own credit file.
- Accounts prepared without an accountant are usually still accepted, but some lenders ask more questions or want extra evidence.
- A trading dip that led to both lower profit and a credit issue is easier to explain when the dates and reasons are clear.
Why net profit, not turnover?
Turnover is the total money coming into the business before costs; net profit is what is left after expenses, and is what actually supports your household spending and mortgage payments. Lenders assess sole traders on net profit as shown on your SA302 tax calculation, with the matching tax year overview, or in your accounts.
A sole trader with high turnover but thin margins may have a lower income figure for mortgage purposes than the size of the business suggests. It helps to understand which figure a lender will actually use before assuming your turnover reflects your borrowing power.
Averaging your figures, or using the latest year
| Approach | When it is typically used |
|---|---|
| Average of 2 years | Where profit has been broadly stable or has grown gradually. |
| Latest year only | Some lenders use this where the most recent year is stronger, rather than pulling the average down. |
| Lower of the 2 years | Some lenders default to the more cautious figure, particularly where profit has fallen. |
General information only. Not every lender offers every approach, and none of these are guaranteed.
If your income has dropped between the two years, see our page on falling income for how that is generally viewed alongside adverse credit.
Why do business debts show on your own credit file?
A sole trader is not a separate legal entity from the person running the business, so a business loan, supplier account or business credit card taken out in your name is a personal debt. If it is missed, defaulted on, or leads to a CCJ, it shows on your personal credit file in the same way a household debt would.
Explaining what happened
Lenders and advisers are generally more comfortable when they can see a clear link between a trading dip and a credit problem, especially where the business has since recovered. Bank statements and accounts that show income improving after the issue arose can support that explanation.
What if you do not use an accountant?
Many sole traders prepare their own tax return, and this is usually still acceptable, since your SA302 comes from HMRC either way. Some lenders prefer accounts prepared or reviewed by an accountant, particularly a member of a recognised professional body, and may ask more questions if your figures are self-prepared.
- Keep your SA302s and matching tax year overviews for at least the last 2 years.
- Keep business and personal bank statements, ideally in separate accounts.
- If you use bookkeeping software, keep exportable reports that match your tax return.
- Consider asking an accountant to review your figures before applying, even if they did not prepare them.
- Check your credit reports from Experian, Equifax and TransUnion for anything linked to the business.
What may affect a sole trader’s remortgage options
| Factor | Why it matters |
|---|---|
| Net profit trend | Whether profit has been stable, growing or falling across the years a lender looks at. |
| How profit is calculated | Average of 2 years, latest year, or the lower year, depending on the lender. |
| Whether accounts are accountant-prepared | Some lenders prefer this, or ask more questions where figures are self-prepared. |
| Type and cause of any business debt problem | A supplier account or business card issue linked to a specific trading dip. |
| Age and status of the credit issue | How recent, how large, and whether satisfied or still outstanding. |
| Current business performance | Whether income has recovered since any past difficulty. |
| Loan to value | A lower LTV can widen the choice of lenders willing to look closely at both profit and credit history. |
These are general points, not lender rules. Each lender sets and changes its own criteria.
Information an adviser may ask for
You don’t need all of this to make an enquiry. It helps to know where to find it, because an adviser is likely to ask about most of it.
- SA302 tax calculations and tax year overviews, usually for the last 2 years
- Business and personal bank statements
- Details of any accountant involved in preparing or reviewing your figures
- Details of any business debts that led to missed payments, defaults or a CCJ
- A short explanation of what caused any trading dip and what has changed since
- Your credit reports from Experian, Equifax and TransUnion
Frequently asked questions
Do lenders look at my turnover or my profit?
Net profit, not turnover. This is the figure left after business expenses, taken from your SA302 tax calculation or your accounts, because it reflects what is actually available to support your household costs and mortgage.
Why does a business debt show on my personal credit file?
As a sole trader you are not legally separate from your business, so debts taken out in your name are personal debts. If one is missed or defaulted on, it appears on your own credit file in the same way as any other personal debt.
Do I need an accountant to remortgage as a sole trader?
Not necessarily. Many lenders accept SA302s from a self-prepared tax return. Some prefer accountant-prepared figures, particularly from a recognised professional body, and may ask more questions if yours are self-prepared, so it is worth checking with an adviser first.
My profit fell one year because of a slow period. Will that count against me?
It depends on the lender and how the fall is explained. A one-off dip with a clear cause, followed by recovery, is generally viewed differently from an ongoing decline. See our page on falling income for more detail.