Star letter: HMRC has to rely on the ‘honour system’
There were some interesting readers’ views last week on the use of SA302s but few seemed to appreciate the essence of how HM Revenue & Customs taxes the incomes of the self-employed.
The biggest clue is in the title ‘self-assessment’ as HMRC relies almost entirely on the honesty of business principals in declaring their revenue, expenses and net profit. To audit every UK business would be a Herculean task so HMRC relies on the ‘honour system’.
If you can afford the taxes, you can declare that you earn £250,000 net profit for the next two years and then borrow based on that income in 2017.
With regard to being able to alter a submitted return, this cannot be banned as there are many valid accounting reasons for making amendments post-submission.
The best solution is further expansion and cost reduction of the current low-profile system whereby lenders can check incomes with HMRC electronically. This could save the need to supply payslips, historic P60s, SA302s, accounts, etcetera, which has to be cheaper than collating the documents, although perhaps an alert process could be included to notify lenders of any significant post-submission amendments.
Until then, all lending to the self-employed/company directors is essentially ‘self-cert’ because it relies entirely on the borrower’s declaration of income, albeit via HMRC.
Arron Bardoe, Temple Capital Finance
Mortgage prisoners are self-incarcerated
Having read so much about the conflict between transitional rules and the Mortgage Credit Directive, I must comment on the endless use of the term ‘mortgage prisoners’. It is excessively emotive and implies that people have been put in a position through no fault of theirs.
That may be true of some borrowers where unforeseen circumstances have arisen since they took out their loan. But what about those who abused the self-cert system or who took out an interest-only loan because a capital repayment was unaffordable? Did they, or their advisers, not place them in the position they currently find themselves in? Did they not willingly sign up to a contract in the full knowledge of its implications? Did they not know that, when their initial deal came to an end, they would revert to standard variable rate and it was not a given that their broker would be able to remortgage them to a new beneficial deal?
If they are prisoners, are they not self-incarcerated? Or do we continually take all consumers as being victims rather than responsible adults? They freely signed up to a contract and it guaranteed them nothing other than SVR at a later date. Are we truly saying that the mortgage contract is enforceable only if it is solely in favour of the borrower?
There are undoubtedly victims of the recession and people being badly served by the advice they were given but I suspect they are in the minority. The majority, whom we are asked to feel sorry for, knowingly put themselves in their current position.
This may be controversial and doubtless I will be seen as a heartless representative of lenders but the hype over the use of the word ‘prisoner’ is politician speak and does nothing to bring a proper debate to the situation.
I await the opprobrium.
Nobody expected this inquisition
In reply to the Grey-Haired Underwriter, I understand the legitimate line of thought that says borrowers should be held responsible for their own actions. However, lenders, brokers and – probably equally significantly – regulators failed them in the past as everybody from the top down expected the bubble to never burst.
Those not versed in the financial world do not look ahead; all they want is the vehicle to allow them to buy their home. Even professionals in highly paid and supposedly highly respected lines of work show amazing naivety when it comes to financial contracts.
I am sure it was the majority, not the minority, who were blissfully unaware of what the full consequences of recession could be. While mortgages were made too easy to obtain in the past, they are now being made too difficult to obtain in the present.
This is down to the regulators and, in some cases, lenders being too rigid even with those with a record of serviceability.
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