SA302: the tax calculation document many contractors can’t be without

Mentioned last month on ContractorUK alongside the staple P60 form, the equally important SA302 is a document issued by HMRC which evidences an individual’s earnings for a tax year.

SA302: in a nutshell

But significantly, it only evidences the income that has been declared to HMRC via a self-assessment tax return – another Revenue form which your contractor accountant can assist you with, writes Graham Jenner of chartered accountancy firm Jenner & Co.

When might contractors need an SA302?

An SA302 may be needed when contractors apply for a mortgage or other type of loan. This is because some lenders are now insistent on seeing an SA302 as proof of income.

It’s an old tale which accountants like to tell but, once upon time, it was said people have three sets of accounting records for their business; one for the taxman (income understated), one for applying for finance (income overstated), and one for the filing cabinet (income stated correctly)!

SA302: the HMRC-lender-taxpayer dynamic

More widely, us advisers know of cases where people applying for a mortgage have shown a higher income than they reported to HMRC, which led to HMRC being prepared to issue the SA302 -- free of charge -- as evidence of earnings.

From HMRC’s perspective, the hope must be that taxpayers will more accurately report their income, if they know that the income reported to their officers could be used to determine the level of borrowing on a mortgage or loan!

Similarly, from the lender’s perspective, the lender can assume that a person won’t have deliberately overstated their income on their tax return, with a view to securing a higher amount of mortgage.

Of course, all taxpayers submitting a self-assessment tax return should ensure that it is accurate. Taxpayers who are not required to complete a tax return have a duty to notify HMRC if their circumstances have changed, and they should complete one at such a stage. This might be because they have a new source of income that is not taxed at source e.g. self-employed income, or rental income.

How can I obtain an SA302?

If you have used HMRC’s online software to submit your tax return, you can log-in to your HMRC online account and print the SA302 for a tax year. The SA302 is available for the last four years, although contractors in a rush should be aware that you may have to wait up to 72 hours after submitting a tax return to be able to access the SA302 for that year.

In addition, you can also print out your ‘Tax Year Overview’ for any year, which a lender may also request. To access this, log-in to your online account, then go to ‘Self-Assessment,’ then ‘More Self-Assessment Details.’

I don’t use HMRC’s online software, how do I obtain an SA302?

If you submit your tax return using third party software, or an agent, then you will not be able to obtain an SA302.

Instead, a lender should accept a print out of your tax calculation for the relevant year(s) from the software you used, together with a copy of the ‘Tax Year Overview.’

The overview can be printed by logging onto your HMRC online account, as noted in the section above or, if you use an agent (e.g. an accountant) to submit your tax return, they will be able to print it for you or email it to your inbox for you to print.

Does the SA302 (or equivalent) include all my income?

Since the SA302 and ‘Tax Year Overview’ are each based on information you’ll have reported to HMRC on your self-assessment tax return, they will include all the income you have officially declared. Obvious perhaps, but just to reiterate, these documents will not include any income you have not declared.

I’m a contractor working through an umbrella company. Do I need an SA302?

An SA302 (or equivalent) is only relevant if you submit a self-assessment tax return. If your only income in a tax year is through PAYE, such as from you contracting through an umbrella company, you will not need to submit a self-assessment tax return (assuming no expenses, and assuming your income is under £100,000) and so an SA302 won’t be available. In these circumstances, you can usually prove your income based on payslips, like the P60. It may be worth considering specialist brokers or lenders who focus on contractors if you’re an umbrella company contractor wanting as much support as possible.

I operate through my own limited company. Do I need an SA302?

If you work as a contractor through your own limited company, you will probably be paid a small salary and the rest of the income from the company paid as dividends. In these circumstances, the lender can insist on an SA302 (or equivalent as above), as it evidences both your salary and dividend income as declared to HMRC.

That said, some lenders do take into account profits made by the company, but not paid out as dividends. This is on the thinking that you could have taken the extra profit as dividends if you had wanted, but choose not to, perhaps because it would suffer tax at higher rate.

Again, it may be worth considering specialist contractor brokers or lenders, in these circumstances.

I operate as a contractor on a self-employed basis. Do I need an SA302?

You will almost certainly need an SA302 or equivalent if you’re a self-employed sole trader seeking a loan. Quite simply, you are required by HMRC to submit a self-assessment tax return, and the lender will want to see evidence of the income you declared to the tax authority.

Are there any issues with either the SA302 or equivalent?

Last but not least, you will need to check that the lender will accept documents you have printed out yourself. They will have their own internal ways of checking that the SA302 and the ‘Tax Year Overview’ have genuinely been printed from HMRC’s online service.

HMRC have published an online list of those providers who have agreed to accept these documents printed by yourself. To avoid a nasty surprise at a potentially stressful time, it’s definitely guidance worth checking out in advance of needing your documents quickly approved: Mortgage providers and lenders who accept a SA302 tax calculation and a tax year overview

Tuesday 7th Dec 2021
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Written by Graham Jenner

Graham is a Chartered Accountant and has run his own accountancy practice, Jenner Accountants Ltd, for over 20 years and is the MD of Nopalaver Group, which provides Umbrella company and other services to contractors. He specialises in dealing with family run businesses and contractors, supported by a strong team including 5 qualified accountants.

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