For a self-employed barrister applying for a mortgage, one of the first questions is often one of the hardest to answer as simply as it sounds:
What is your income?
Your tax calculation may show one figure.
Your accounts may show another.
Your chambers information may show something different again.
That does not necessarily mean there is a problem with any of them.
More often, the documents are showing different parts of the same financial picture, over different periods and for different purposes.
For mortgage purposes, understanding those differences matters. The objective is not to decide which document contains the “right” number. It is to understand what each figure represents and how a lender may assess the income as a whole.
The Numbers May Be Different Because They Are Answering Different Questions
When we look at a barrister’s income, we may be considering completed accounts, tax calculations and more current information from chambers.
It would be convenient if all three produced the same headline figure.
They often do not.
Accounting periods and tax periods may not align neatly. There can also be a significant difference between work undertaken, fees billed and payments actually received.
Chambers information can provide another perspective again, including information around work done, receipts and aged debt.
So before comparing the numbers, there is a more useful question to ask:
What exactly is each document showing us?
That is where the mortgage assessment should begin.
Your Tax Calculation Is Historic Evidence
Tax calculations are commonly used as part of evidencing self-employed income.
But the figure needs to be understood in the context of the period to which it relates and the way the barrister’s income has been reported.
This becomes particularly important when a barrister tells us:
“That figure does not reflect what I am earning now.”
They may be right.
But that does not mean the tax calculation is wrong.
The practice may have developed considerably since the relevant period. Income may have increased or reduced. The timing of receipts may have changed. There may have been a career event that affected earnings.
The tax calculation tells us something important about historic income.
It does not necessarily tell us everything about the practice today.
The Accounts May Be Looking At A Different Period
Completed accounts provide another important view of the practice.
But before comparing them with the tax calculation, we need to understand the dates.
What period do the accounts actually cover?
If the accounting period and the relevant tax period do not align, comparing the two headline figures without understanding that difference can be misleading.
This sounds like a relatively small technical point.
In a mortgage application, it can be anything but.
Where income has changed materially, even a difference in the periods being measured can make two perfectly valid documents appear to tell different stories.
The starting point is therefore not to ask why the figures fail to match.
It is to establish what each figure actually covers.
Chambers Can Give Us A More Current View Of The Practice
Chambers information can add another layer.
Depending on what is available, it may provide information around:
- work done;
- payments received; and
- aged debt.
Those figures can help us understand what has been happening within the practice since the latest completed accounts.
But they should not be treated as interchangeable.
A substantial amount of work undertaken does not necessarily mean the same amount has already been received.
Equally, lower receipts during a particular period do not necessarily mean the same volume of work has not been undertaken.
Understanding that distinction is fundamental when looking at barrister income.
Work Done And Cash Received Can Be Very Different Numbers
Consider a barrister who has had an exceptionally busy period.
The chambers figures may show a substantial amount of work undertaken.
But some of the associated fees remain outstanding.
If we look only at cash received, the period may appear weaker than expected.
If we also look at the work undertaken and the outstanding fees, we begin to understand why.
That does not mean unpaid fees should simply be added to income for mortgage affordability.
They have not yet been received, and the lender will determine what evidence and income it is prepared to accept.
But the wider information can help explain the apparent gap between the activity within the practice and the cash that has reached the barrister.
There is a considerable difference between:
“Receipts have fallen.”
and:
“Receipts are lower during this period, and the chambers information helps us understand why.”
Aged Debt Can Provide Important Context
Aged debt is another part of that picture.
Where significant fees remain outstanding, it may help explain why the income received during a particular period does not appear consistent with the level of work undertaken.
Again, this needs to be handled carefully.
Aged debt is not the same as cash in the bank.
Nor should it automatically be treated as income available for mortgage affordability.
Its value is often in helping us understand the practice.
If receipts appear unusually low but there is significant outstanding debt relating to work already undertaken, that may provide useful context for an underwriter assessing why the figures have moved.
The distinction is subtle, but important.
Evidence can help explain an income figure without necessarily replacing it.
The Year End Can Create Some Particularly Misleading Comparisons
Timing can have a considerable impact on the way a barrister’s income appears.
Imagine significant work is undertaken towards the end of an accounting period.
The corresponding fees are then received shortly after the year end.
One period can appear relatively weak.
The next can appear unusually strong.
If those figures are viewed independently, it might look as though the practice has experienced a significant fall followed by a sudden recovery.
The reality may simply be that the work and the cash landed on opposite sides of the reporting date.
That is why a sharp movement between years deserves investigation before conclusions are drawn about the direction of the practice.
So, Which Number Will The Lender Actually Use?
There is no universal answer.
Different lenders can assess self-employed income differently. The documentation required, periods considered and treatment of fluctuating earnings can vary.
A lender may place significant weight on completed historic figures.
If those figures have moved materially, it may want to understand why.
More recent chambers information may help provide that explanation, but it should not be assumed that a lender will substitute work done, outstanding fees or another current figure for the income evidenced through the documentation it ordinarily uses for affordability.
This is why we want to understand the income before deciding where the mortgage application should go.
Lender selection should follow the circumstances of the case, rather than the other way around.
The Differences Become More Important When The Practice Is Changing
For a barrister with relatively consistent earnings, differences between documents may be relatively straightforward to explain.
They can become much more significant during periods of change.
Perhaps the barrister has recently taken tenancy and the practice is developing quickly.
Perhaps they have moved chambers.
Perhaps they have returned from maternity or paternity leave.
Perhaps their workload changed during the process of taking silk.
Perhaps they have taken on judicial responsibilities.
Or perhaps a substantial amount of income simply landed on the other side of an accounting period.
In each case, one historic figure viewed in isolation may provide only part of the picture.
That does not make the historic evidence less important.
It makes understanding the relationship between the different documents more important.
We Are Not Looking For Whichever Document Shows The Highest Income
This is a crucial distinction.
Specialist mortgage advice is not about putting the tax calculation, accounts and chambers information next to one another and choosing whichever produces the largest number.
The objective is to understand why they are different.
What period does each document cover?
What income has actually been received?
What work has been undertaken?
What remains outstanding?
Has something changed within the practice?
Is there a clear reason for an unusual year?
And what income can appropriately be evidenced to the lender being considered?
Sometimes that analysis supports a stronger borrowing position.
Sometimes it confirms that the more conservative figure is the appropriate one to use.
Both outcomes are useful.
What matters is that the application is built around evidence rather than assumption.
Different Numbers Do Not Necessarily Mean Conflicting Numbers
A tax calculation, set of accounts and chambers report can all show different figures while still forming part of the same coherent financial picture.
The key is knowing how to read them together.
At Henry Dannell, we understand that each document may be telling us something different about a barrister’s practice.
Our role is to establish what period each figure represents, understand what has happened between those periods and identify whether there is a clear explanation for any material differences.
Only then can we consider how the income should be presented and which lenders may have an appropriate approach to assessing it.
So when a barrister asks:
“Which one is my income?”
The mortgage conversation does not necessarily begin by choosing between three numbers.
It begins by understanding why there are three different numbers in the first place.
A mortgage is secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Mortgage availability and lending are subject to individual circumstances, status and lender criteria.
