Contractor mortgage claims 'must match tax return details'

Contractors who make income declarations directly to a mortgage lender that don’t correlate with figures on their tax return face possible investigation by Revenue & Customs.

Issuing the warning to CUK readers last night, an independent financial advisor to contractors was responding to the bedding down of the recently launched Mortgage Verification Scheme.

ContractorMoney said: “If a client’s income declaration on a mortgage application doesn’t match what’s written on their tax return, they could face an HMRC investigation.”

Under the MVS, lenders who suspect a mortgage applicant has provided fake income figures (typically in a bid to boost their borrowing power) can pass the details to HMRC for a cross-check.

For lenders, the scheme’s appeal is that it should weed out fraudulent applicants – indeed, in its pilot, banks and building societies agreed it was helping them to lend more responsibly.

For the tax authority, the tie-up with lenders offers what HMRC called an “unprecedented opportunity” to risk assess whether the figures given on the applicants’ tax affairs are correct.

The exchange of data between the Revenue and lenders, who can choose whether to join MVS, should only be “limited,” however, and detailed information on how the scheme works “is available to lenders only.”

Although the government’s small print on the MVS’s terms may reassure some contractors who have erred in their mortgage applications, any submission made to a lender which arouses suspicion could be the starting pistol of an HMRC probe.  

“This [highlights] the importance of clients not going direct in a haphazard way to a lender on the High Street,” said Tony Harris of ContractorMoney, which has agreements in place with specialist lenders.

“Thankfully we get the applicant’s figures right first time [because] we don’t approach lenders unless they will work off of the gross contract rate.

“This avoids any problems with this new HMRC initiative because the clients will fit the lenders criteria without having to resort to PAYE figures.”

He also warned contractors to be wary about applying to a second mainstream lender having already been rejected by another, as lenders’ “sophisticated systems” mean the sharing of such information is increasingly commonplace.

“So many contractors are unaware of the potential damage they can do by making unsuccessful mortgage applications to a bank or building society direct or via a non-contractor specialist mortgage broker,” he said.