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  • Insurance

    Rent Guarantee Insurance for Self-Employed?

    I have a potential tenant who is working as a contractor under his own name. He has great bank records and contractor "payslips" from the company for the past 6 months showing his steady "salary". However, as he is a contractor and does not have an accountant, the credit check agency cannot pass him for rent guarantee insurance (even though they have his historical bank statements and contractor "payslips" confirming his income levels etc).

    Is there any other credit check agency out there that will pass a contractor without an accountant for RGI purposes? There is no guarantor.  Seems a shame that this class of hard worker will find it hard to rent, as landlords will not be able to get RGI for him....

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    What type of contractor ?

    If its construction work something is wrong as he would be subject to CIS and desperate to get his refund.

    It is unusual to say the least to be a contractor and salaried. CIS is the usual way or its an IR35 question. Either way there would be a tax return. Ask for an SA302 to be faxed across by HMRC.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Ask him for copies of his last 3 years tax returns;  I'm sure he has nothing to hide....

    You may be surprised by some of the numbers.....

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    I personally would reject this application and move on the the next that meets the critiria .

    After a recent bad experience I was so glad to have had taken out landlord rent and legal insurance to cover the 8 months to eviction .. this I couldn't have taken out if referencing has shown he didn't meet the criteria .

    I am sure this tenant is a great guy, but is it worth the risk ... best of luck.

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    Thanks Neil. Yes, I think I may have to, as the risk is too much. Very tempting to just take a number of months' rent in advance but I know that just delays any future problems.

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    Thanks - he is a mechanical engineer and he is indeed under CIS (I did not know what that was, until you mentioned it above and I then googled it). He is not "salaried" as such, but I just used the word "salaried" as I didn't know how else to describe his monthly income. The payment statement gives an Employer PAYE number for the company that pays him, but lists him as a subcontractor. Does this mean he is an employee or is he an independent contractor? If he is the latter, then the credit check agency (landlordreferencing.co.uk) said they won't pass for RGI any contractor without an accountant, even if he gives all his statements or tax returns.

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    Sounds as if he is simply a sole trader - who unlike a PAYE employee can offset things like commute costs/work lunches /work clothing/tools etc against his gross pay for tax purposes.

    Relevantly as a contractor he has no g'teed future income - in stark contrast to a permanent PAYE employee - and if when present short term contract finishes and is not renewed there is no eligibility for redundancy pay.

    As he is on CIS - I am pretty sure he will have completed his 2017/18 SA Tax return last April so as to get refunded the "emergency tax" he will have been charged.

    Out of interest what sort of income has he said he makes gross?



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    Thanks LandyLord. He makes about £55k a year gross (based on his last series of payment slips). It always surprises me that "employees" are considered secure when they can be made redundant at any time and get very little redundancy pay, whereas a soletrader with a track record of "get up and go" and the smarts to do his own tax return is penalised! I am sure he did his SA Tax return last year, but the credit check agency said they cannot take that into account - they need a statement from an accountant (not sure what the accountant would do anyway - as far as I see, they just look at the same income documents being sent to the credit check agency...).

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    Agreed on both counts - employees can be dumped overnight as long as Employer willing to fund Statutory Redundancy which is capped at a lowish level and mitigates against the higher paid - via the earnings cap at £508 weekly/£26416 pa.

    Even a successful unfair dismissal case has a cap on max compensation and in either event one has no job thereafter - and if you do soon find another job all earnings are deducted from the compo cap.

    As for the RGI issue maybe a home owning guarantor may be available?

    It would be nice to think there is a solution for this hard working chap.

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    As a contractor myself and a landlord, and previously worked as an employee. I would see him as lower risk if he has 2 years worth of accounts. I have seen something similar before where the company for some reason think having an accountant means the business is run more professionally, which in my experience isn't true it just means mistakes aren't made in the accounts but they only work from info you provide.

    In the modern world this situation is coming up time and time again and companies need to adapt to cope with it. Personally I would change my reference agency as they seem antiquated and inflexible.

    Andy

    Ps. I do have an accountant and run my contracting via a limited trading company so if needed I can make the argument that I am an employee of my own company and therefore employed. But basically the ref agency sounds like a box ticking computer says no process.

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    Slowly working towards financial freedom


    It's in his own interest to have last 3 years certified accounts available for this and other purposes. Have you suggested he may want to think about getting an accountant?

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