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There are a lot of great things about being self-employed. You get to be your own boss, choose your own hours, and often, choose your own salary.
When it comes to proving your income though, things can get a little tricky.
Whether you're applying for a mortgage, renting a property, or applying for financial assistance, providing proof of income is often a requirement. But unlike a salaried employee, you won’t have an employment verification letter, and your income might be slightly less consistent, making it hard to prove exactly how much you earn.
In today’s article, we’ll look at the best way to prove your income as a self-employed person, which documents you’ll need to have to hand, and how to make the process easier for yourself in future.
What Is Proof of Income for the Self-Employed?
Proof of income is any documentation that can be used to verify the amount of income a self-employed person has earned in a given period.
Proof and verification of self-employed income are needed in a range of different situations, like when you apply for a credit card, rent an apartment, or take out health insurance.
Understanding the Importance of Proof of Income
Proof of income serves as evidence of your earning capacity and financial stability. It’s a way of showing people they can trust you to be able to hold up your end of a deal.
When you’re applying for a mortgage, for example, your lender needs to be sure that you’ll be able to pay them back each month, and one way of doing this is by verifying how much you’ve earned in a given period.
With this in mind, here are some of the main times you’ll be asked to provide proof of income as a self-employed person:
- Loan Applications: Banks and lending institutions require proof of income to assess your ability to repay a loan
- Renting Accommodation: Landlords may request proof of income to ensure you can afford the rent.
- Tax Purposes: HMRC will require proof of your income for tax filing purposes.
- Financial Assistance: When applying for benefits or financial aid, proof of income helps authorities determine your eligibility.
Types of Proof of Income Documents
As a self-employed person, you won’t have an official employment verification letter, which is often used as proof of income by salaried employees.
But on the bright side, there are plenty of documents you can use as proof of income when you’re self-employed, such as:
1. Your Tax Returns
Tax returns, including Self Assessment tax returns, are official documents filed with HMRC that detail your income, expenses, and tax liabilities.
They provide a comprehensive overview of your financial situation and are widely accepted as proof of income.
2. Bank Statements
Bank statements show your incoming and outgoing transactions over a specific period, typically monthly. They demonstrate regular income deposits from clients or customers and can serve as supplementary proof of income alongside your tax returns.
3. Invoices and Contracts
Invoices and contracts with clients or customers outline the services rendered, payment terms and amounts due. They offer tangible evidence of your income and can be useful for proving your earning capacity.
4. Profit and Loss Statements
Profit and loss statements summarise your business's financial performance over a specific period, detailing revenues, expenses and net profit or loss. They provide a snapshot of your income-generating activities and can be a useful way to demonstrate financial stability.
5. An Accountant's Certification
An accountant's certification is a letter or statement issued by a qualified accountant verifying your income and financial status. It adds credibility to your proof of income documentation and may be required in certain situations.
Tips for Providing Effective Proof of Income
As we’ve covered, proving your income as a self-employed person isn’t as hard as you might have thought. But there are always ways to make life easier for yourself, so here are some tips to make proving your income a breeze the next time round:
1. Keep Your Records Up To Date
Keep detailed records of your income, expenses, invoices and contracts to streamline the proof of income process. It’s helpful to use accounting software or spreadsheets to organise your records effectively.
2. Keep Your Personal and Business Finances Separate
Maintain separate bank accounts and financial records for your business and personal expenses. This ensures clarity and transparency when you’re providing proof of income to third parties.
3. Be Transparent and Honest
Provide accurate and truthful information when submitting proof of income documents. Falsifying income information can have serious consequences and may lead to legal or financial repercussions.
4. Plan Ahead
Anticipate when you may need to provide proof of income and make sure your financial records are up-to-date and readily accessible. Being proactive saves time and minimises stress when you’re providing proof of income.
5. Seek Professional Advice
Always consult with a qualified accountant or financial advisor for guidance on managing your finances and providing proof of income effectively. They can offer personalised advice tailored to your specific circumstances, making sure you fulfil all your legal obligations while making the most of your self-employed income.
With our new service for sole traders, CrunchONE, a professional accountant or tax adviser will not only be able to provide you with a hassle-free Accountant’s Certification to help your prove your income; our experts will also help you make smart money saving and management tips all year round - at a flexible, affordable price.
Ready to Prove Your Income?
We hope you now feel confident about which documents you can use to prove your income as a self-employed individual - and that you feel ready to take out that loan, rent that apartment, or whatever else you’re proving your income for. Good luck!
