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Contractor Guide

IR35 and Mortgages: How Your Status Affects Borrowing

Understanding how inside vs outside IR35 status impacts your mortgage application, income calculation, and lender options.

Updated January 202610 min read

What is IR35?

IR35 is tax legislation designed to identify contractors who would be employees if they were engaged directly, rather than through an intermediary (usually a limited company or umbrella). It affects how your income is taxed and, importantly for mortgages, how lenders assess your earnings.

The 2021 changes

Since April 2021, for medium and large private sector clients, the end client(not you) determines your IR35 status. This shifted responsibility but also created more clarity — your status is now formally determined and documented.

Why IR35 Status Matters for Mortgages

Your IR35 status fundamentally changes how lenders view your income:

  • Outside IR35: You're assessed as a business owner with control over income extraction
  • Inside IR35: You're assessed more like an employee with fixed take-home pay

This affects which lenders you can use, how much you can borrow, and what documentation you'll need.

Inside vs Outside IR35

Inside IR35

Treated as a "deemed employee" for tax purposes.

  • • Tax and NI deducted at source
  • • Limited tax planning options
  • • Often work via umbrella company
  • • Lower net pay than outside IR35
  • • Income more predictable/stable

Mortgage impact: Assessed on net umbrella/agency pay

Outside IR35

Genuinely in business on your own account.

  • • Pay yourself via salary + dividends
  • • More tax-efficient extraction
  • • Trade through your Ltd company
  • • Higher gross-to-net efficiency
  • • More control over timing

Mortgage impact: Day rate or company profit assessment

Status determination

You cannot simply choose your IR35 status. It's determined by the nature of your working arrangements. Since April 2021, medium/large clients must provide a Status Determination Statement (SDS) confirming your status.

How Income is Calculated

Outside IR35: Multiple Options

Contractors outside IR35 typically trade through a Ltd company and have several income calculation options:

Option 1: Day Rate Annualization

Day Rate: £500

× Days per week: 5

× Weeks per year: 48

= £120,000 annual income

Used by: Contractor-specialist lenders (CMME, CLS, etc.)

Option 2: Company Accounts

Salary: £12,570

+ Dividends: £50,000

= £62,570 assessable

OR

Share of net profit: £85,000

Used by: High street banks, some specialists

Inside IR35: Simpler Calculation

Inside IR35 contractors have their income calculated based on what they actually receive after tax and fees:

Umbrella/Agency Net Pay

Day Rate (gross): £400

Less: Umbrella margin, employer NI, apprenticeship levy

Less: Employee tax and NI

= Net pay: ~£250/day (example)

Annualized: ~£60,000

Note: Actual net depends on your umbrella's fee structure and your tax code

The key difference

Outside IR35 at £500/day might be assessed at £120,000 (day rate) or £85,000 (net profit). Inside IR35 at £500/day might only be assessed at £60,000-£70,000 after all deductions. Same gross rate, very different mortgage capacity.

Lender Approaches

Outside IR35 Lenders

Contractor Specialists (Day Rate)

Use day rate × weeks annualization. Require current contract and 12-24 months contracting history. Often broker-only.

Examples: CMME, CLS Money, Kensington

High Street (Company Accounts)

Assess based on company accounts — salary + dividends or share of net profit. Require 2-3 years accounts typically.

Examples: Halifax, Nationwide, NatWest

Inside IR35 Lenders

Employed-Style Assessment

Treat you similarly to an employed applicant. Look at payslips from umbrella/agency, consistent payment history.

Examples: Most high street banks accept this

Some Contractor Specialists

May still offer day rate assessment even inside IR35, though less common. Criteria usually stricter.

IR35 Status Documentation

Lenders may ask for:

  • • Status Determination Statement (SDS) from client
  • • Your current contract showing working arrangements
  • • Confirmation of IR35 status from your accountant
  • • Evidence of how you're paid (Ltd company accounts or umbrella payslips)

Strategies by Status

If You're Outside IR35

  1. 1.
    Use contractor-specialist lenders — Day rate assessment typically gives highest borrowing capacity.
  2. 2.
    Keep contracts continuous — Gaps hurt your application more than inside IR35 contractors.
  3. 3.
    Maintain good company accounts — Some lenders may fall back to accounts if day rate criteria not met.
  4. 4.
    Document your IR35 status clearly — Have your SDS and contract terms ready for underwriting.

If You're Inside IR35

  1. 1.
    Emphasize income stability — Position yourself as having reliable, employee-like income.
  2. 2.
    Gather payslips from your umbrella — 3-6 months of consistent payslips demonstrate stable income.
  3. 3.
    Consider high street lenders — They're often comfortable with umbrella income as it resembles employment.
  4. 4.
    Show contract history — Even if inside IR35, continuous contracting demonstrates income reliability.

If Your Status is Mixed or Changing

Some contractors have multiple contracts with different IR35 statuses, or their status changes between contracts.

  • • Mixed status: Lenders may assess each income stream separately or use the predominant status
  • • Recent change: Be prepared to explain the change and provide documentation for both periods
  • • Use a broker: Complex IR35 situations benefit from specialist broker knowledge

The bottom line

Your IR35 status isn't inherently good or bad for mortgages — it just changes how you're assessed. Understanding your status and choosing appropriate lenders is key to maximizing your borrowing capacity.

Understand your IR35 mortgage options

Get matched with lenders that understand your contracting status and can assess your income appropriately.

Get matched

Frequently asked questions