Self-Employed Tenant Verification

Self-employed tenants are 3x riskier than employed tenants. Why? Because income is variable, tax returns can be manipulated, and there's no employer to verify claims with. A contractor claiming £5,000/month might genuinely earn it—or might have one good contract month followed by three dry months.

The challenge: Self-employed income is harder to verify. You can't call "their boss"—they ARE the boss. You need to dig deeper: check tax returns, analyze business accounts, verify client payments, and assess business stability.

In this guide, we'll show you exactly how to assess self-employed tenant risk.

Understanding SA302 Tax Returns

The SA302 is the UK's official tax calculation certificate issued by HMRC. It shows assessed tax liability for a given year. Self-employed tenants provide this to prove income legitimacy.

Key SA302 Fields to Check:

• Tax Year: Should be current or previous year (2024-25 or 2023-24)
• Net Profit: The key figure. This is business income after expenses.
• Name & NI Number: Must match their passport exactly
• Assessment date: Should be recent (last 12 months)
• Tax Code: Self-employed should have a personal allowance deduction

Red Flag: If the SA302 shows a loss year (negative net profit), they can't afford rent with that income. Ask for an explanation or request business accounts.

Red Flag #1: Income Inconsistencies

Self-employed income varies, but drastic year-to-year swings or mismatches between claimed income and SA302 are red flags.

Inconsistency Red Flags:

• SA302 shows £20k net profit, but they claim £4,000/month (£48k/year): They're exaggerating by 240%. Rejected.
• Income doubled year-over-year: Could be legitimate growth. Could be fraud. Request business accounts to verify.
• Income declined 50% year-over-year: High risk. Are they exiting the industry? Is the business failing? Ask for 3-month bank statements to show current income.
• SA302 from 2 years ago, but business is "much bigger now": Verify with most recent tax return or accountant letter.

Affordability Rule: Use the LOWER of (SA302 net profit / 12) or (claimed monthly income). If the £20k SA302 tenant claims £4k/month, use £1,667/month for affordability calculation.

Red Flag #2: Accounting Anomalies

Business accounts (filed with Companies House or provided privately) reveal the truth. Fraudsters often get accounting details wrong.

Account Red Flags:

• Expenses suspiciously low: A contractor claiming £5k monthly profit but zero travel costs, zero software costs, zero client entertainment. Realistic profit margins are 30-50%, not 100%.
• Director loans vs. salary: If the business paid all profits as director loans (instead of salary), that income isn't guaranteed and can be recalled.
• Negative cash flow: Accounts show £50k profit but £5k cash in bank. Where did the money go? High risk of cash extraction fraud.
• Related party transactions: "Consulting fees" to another company owned by the same person. Money washing scheme?
• No accountant: True business people have accountants. Self-employed people doing their own books (especially with large claimed incomes) are higher risk.

Action: Request the last 2 years of business accounts (filed at Companies House or accountant reference). If they refuse, REJECT application.

Red Flag #3: Industry & Business Type Red Flags

Some business types have higher fraud rates than others. Some industries are legitimate but volatile.

High-Risk Business Types:

• "Consultant": Vague title. What do they consult on? For whom? Ask for client list or contracts.
• "Trader" / "Investor": Cryptocurrency, day trading, forex. High volatility. Income can disappear overnight. Request 3-6 months of bank statements showing consistent income.
• "Import/Export": Often used to disguise cash businesses or money laundering. Request supplier/client documentation.
• Business < 2 years old: Startup business with high claimed income (£5k+/month) is suspicious. New businesses take time to build revenue.
• One major client: If 80%+ of revenue comes from one client, that's high risk. If they lose that client, income drops 80%.

Lower-Risk Business Types:

• Software development (higher rates, documented)
• Design/creative agencies (portfolio-based, verifiable)
• Trades (plumbing, electrical—high demand, verifiable work)
• Professional services (accounting, law, consulting with established clients)

RED FLAG If they say "I'm a consultant" but can't explain what they consult on, who they work for, or provide contracts—reject the application.

The Right Way: 5-Step Self-Employed Verification

Step 1: Request Full Documentation Package (5 minutes)

• Most recent SA302 (last 12 months)
• Last 2 years of business accounts (filed at Companies House if limited company)
• Most recent 3-6 months of personal bank statements
• Business registration details (for Company House verification)

Step 2: Analyze Income Consistency (10 minutes)

• Calculate average monthly income from SA302 (net profit ÷ 12)
• Compare to claimed monthly income (they should be similar)
• Use the LOWER figure for affordability calculations
• Check year-over-year consistency (is income stable or volatile?)

Step 3: Verify Business Legitimacy (10 minutes)

• Check Companies House registration (if limited company)
• Verify director/owner matches applicant
• Look for recent accounts filed (delayed filings = red flag)
• Check business age (under 2 years = higher risk)

Step 4: Analyze Bank Statements (15 minutes)

• Identify client deposits vs. personal transfers
• Calculate average monthly income from client deposits
• Compare to SA302 income (should align)
• Look for gaps (months with zero income = instability)

Step 5: Final Risk Assessment

• Green: Income consistent, business legitimate, 2+ years established, bank statements align
• Yellow: Income variable, newer business, or some inconsistencies. Request reference from major client.
• Red: Massive income gaps, inconsistent documentation, high-risk industry. REJECT or request deposits/guarantor.

Case Study: How We Caught a £8K/Month Fraud

The Application: "Management Consultant" claiming £8,000/month, applying for £2,000/month flat. SA302 looked legitimate, issued by HMRC.

What We Found:

• SA302 showed £15k net profit (£1,250/month average), but applicant claimed £8,000/month
• 3-month bank statements: ONE £8,000 deposit in month 1 (from an unknown source), then zero income months 2-3
• That single £8k deposit was transferred FROM another personal account (savings withdrawal, not business income)
• Companies House: No business registration under their name

The Verdict: HIGH RISK. Created false income illusion by withdrawing personal savings, claiming it as business income.

Follow-up: Landlord rejected application. Later discovered applicant had evicted a previous tenant for non-payment.