When applying for a mortgage, “self-employed” is not treated as a single category by lenders.

Sole traders, limited company directors and contractors can all fall under the self-employed umbrella, but the way their income is assessed can differ significantly.

Understanding how lenders typically view each structure helps clarify why documentation requirements vary and why income calculations are not always the same.

This guide explains how mortgage lenders commonly assess income for different types of self-employed applicants.

What Does “Self-Employed” Mean to a Mortgage Lender?

In mortgage terms, an applicant is generally considered self-employed if they:

• Own 20–25% or more of a business, or
• Are not paid solely through PAYE as an employee

This can include:

• Sole traders
• Limited company directors
• Partners in a partnership
• Contractors operating through a limited company

Although these groups are all classed as self-employed, lenders assess their income differently depending on how it is structured and declared.

Sole Traders: How Income Is Typically Assessed

Sole traders are taxed on the profit of their business. Their income is declared through Self Assessment and evidenced using HMRC documentation.

Lenders typically request:

• SA302s
• Tax Year Overviews

For sole traders, lenders usually assess income using the net profit figure shown on the SA302. This represents profit after allowable business expenses.

Where more than one year is required, lenders often compare income across tax years to assess consistency and trends. You can read more about this in our guide on how mortgage lenders average self-employed income (and when they don’t).

Because sole traders are personally responsible for business profits, the net profit figure is generally treated as personal income for affordability purposes.

Limited Company Directors: Salary, Dividends and Company Profit

Limited company directors are taxed differently from sole traders. Their business is a separate legal entity, and income is often structured through:

• Director’s salary (via PAYE)
• Dividends
• Retained company profits

On personal tax documents, income usually appears as:

• Employment income (salary)
• Dividends received

Many lenders assess limited company directors using:

Salary + dividends

These figures are shown on the director’s SA302 and reflect income that has been drawn personally.

However, some lenders may also consider:

• Salary + share of company net profit (after corporation tax)
• Salary + share of company profit before tax

Where company profit is included in the assessment, lenders typically require full company accounts in addition to personal tax documents.

Because income can be structured in different ways, two directors with similar businesses may show different personal income figures on their tax returns.

Contractors: How Income May Be Viewed Differently

Contractor applications can be assessed differently depending on how income is structured and whether taxable income shown on a tax calculation reflects actual earnings.

Contractors can include:

• Contractors operating through a limited company
• Contractors working via an umbrella company
• Fixed-term contract workers paid via PAYE

In some cases, lenders may assess a contractor using their contract rate, rather than relying solely on income shown on an SA302.

Where contract income is used, lenders will typically review:

• The daily or weekly rate
• The number of days contracted to work each week
• The length of the current contract
• Whether the contract is likely to be renewed

Some lenders calculate contractor income by using a formula such as:

Daily rate × days per week × 46–52 weeks per year

This approach is commonly used where the lender’s criteria allows income to be based on the contract value rather than taxable income alone.

Documentation requirements vary between lenders, but contractor applications often involve providing contract evidence in addition to (or instead of) tax documentation.

Why Income Assessment Differs by Structure

The key reason mortgage income rules differ between sole traders, limited company directors and contractors is how income is declared and taxed.

• Sole traders are taxed on business profit.
• Limited companies pay corporation tax, and directors are taxed separately on salary and dividends.
• Contractors may be paid through contracts, PAYE or dividends depending on their structure.

Because lenders rely on declared, taxable income, the format in which income appears on HMRC documents directly affects how it is assessed.

If you’d like to understand more about how tax documents such as SA302s and Tax Year Overviews are used in mortgage applications, our guide on how mortgage lenders use SA302s for self-employed income explains the documentation in more detail.

How Many Years of Income Are Usually Required?

Most lenders request at least two years of income evidence for self-employed applicants, although requirements vary.

When multiple years are requested, lenders typically compare figures to assess consistency. In some cases, income may be averaged across years; in others, the most recent year may be used.

Understanding Self-Employed Mortgage Criteria

Although sole traders, limited company directors and contractors are all classed as self-employed, mortgage income rules are not identical across these groups.

Income structure, tax treatment and documentation all influence how lenders assess affordability.

For a broader overview of criteria and documentation requirements, visit our page on mortgages for self-employed applicants, where we explain how income is typically reviewed across different business structures.