Mortgage Broker
Tax & MTD Guide
Procuration fees and client commission, FCA and PI costs, networks, VAT exemption and MTD for Income Tax explained for UK self-employed mortgage brokers and advisers.
Estimate your tax as a self-employed mortgage broker
Adjust the figures to see your estimated Income Tax and Class 4 National Insurance for the year.
Total turnover before expenses
Under £1,000 we use the trading allowance automatically
Estimated tax bill
£7,652
15.3% effective rate for 2026/27
- Income tax
- £5,886
- Class 4 NI
- £1,766
Take-home pay
£34,348
after tax, NI and expenses
This is an estimate using HMRC-confirmed rates for 2026/27, not your official tax calculation. TapTax is MTD-compatible, so you can connect to HMRC and file the real figures in a couple of taps.
- Procuration fees from lenders and any client-paid broker fees are self-employment trading income, taxed on profit through Self Assessment with Income Tax and Class 4 NIC.
- Your largest deductions are usually compliance and software, not equipment: FCA fees, the network or appointed-representative split, professional indemnity insurance, sourcing systems and CRM.
- Most broking is a VAT-exempt financial intermediary service, so brokers rarely register for VAT even above £90,000, and generally cannot reclaim VAT on costs.
- Timing trips brokers up: under the accruals basis a fee is taxable when the case completes, not when the network finally pays you weeks later.
- MTD for Income Tax applies from April 2026 above £50,000, April 2027 above £30,000 and April 2028 above £20,000, tested on gross commission income not profit.
A self-employed mortgage broker has a deceptively simple-looking tax position and a few sharp edges hiding inside it. The income is mostly commission: procuration fees paid by lenders when a case completes, plus any advice or arrangement fee you charge the client directly. There is little equipment and few obvious costs, which is exactly why brokers tend to under-claim on compliance and software while getting tangled up in two things that are genuinely fiddly for this trade: the network split and the VAT treatment of financial services.
This guide is built around how brokers actually earn and spend. It covers how procuration fees and client fees are taxed, the difference between gross-and-deduct versus net network arrangements, the real allowable-expense list for a regulated adviser, why most brokers stay outside VAT despite high turnover, and what Making Tax Digital changes from April 2026. Get the income timing and the network split right and the rest is straightforward.
How Tax Works for a Self-Employed Mortgage Broker
As a sole trader you pay Income Tax on profit: total commission and fee income minus allowable expenses. For 2026/27 the personal allowance covers the first £12,570, then you pay 20% to £50,270, 40% to £125,140 and 45% above, with the personal allowance tapering away between £100,000 and £125,140 to create an effective 60% band. A successful broker writing high case volumes can easily reach the higher and additional rates, so that taper is worth watching. Class 4 National Insurance is 6% on profit between £12,570 and £50,270 and 2% above, with Class 2 NIC settled through Self Assessment.
Scottish brokers pay Scottish Income Tax on their profit through six bands (19%, 20%, 21%, 42%, 45% and a 48% top rate) and carry an S-prefixed tax code, while National Insurance stays UK-wide. Welsh brokers have a C-coded tax code at rates currently matching the rest of the UK. If your code looks wrong, often because a previous employed adviser role or a part-time PAYE position is distorting it, run it through the tax code checker.
How Broker Income Is Taxed: Procuration Fees and Client Fees
A broker's turnover usually splits into two streams, and both are trading income taxed the same way.
| Income type | How it is taxed | Watch out for |
|---|---|---|
| Procuration (proc) fees from lenders | Self-employment trading income | Taxable when the case completes, not when the network pays you |
| Client advice / arrangement fees | Trading income | Record the gross fee even if invoiced separately |
| Protection and GI commission | Trading income | Indemnity (upfront) commission can be clawed back; see below |
| Referral fees (conveyancing, surveys, GI) | Trading income | Often paid net of a referral platform cut |
| PAYE from a former employed role | Employment income, taxed at source | May already use your personal allowance |
| Buy-to-let property you own | Property income on SA105 | Mortgage interest gets a 20% credit, not a full deduction |
The accruals basis is what catches brokers out. A fee becomes taxable in the tax year the case completes and you are entitled to it, even if the lender or network does not settle until the following month or quarter. A completion on 2 April sits in the new tax year only if entitlement genuinely arises then; a March completion paid in April still belongs to the year it completed. Keep a pipeline that records the completion date, not just the payment date.
Clawbacks and Indemnity Commission
Protection providers often pay commission upfront on an indemnity basis and claw it back if the policy lapses within the early months. A clawback is a reduction of your trading income: deduct it in the period it arises rather than ignoring it. If you record only net receipts you may already be capturing this, but if you book gross commission you must remember to back out clawbacks at year end.
The Network Split: Income or Expense?
Many brokers operate as an appointed representative of a network or under a directly authorised principal that takes a percentage of each proc fee. How you record this depends entirely on how the money flows.
- Network pays you gross, you pay the split: record the full proc fee as income and deduct the network percentage as an expense.
- Network pays you net of its cut: record only what you actually receive; the split never appears as income or expense.
Both routes reach the same profit. The error is mixing them, for example recording net income while also claiming the split as an expense, which deducts the network's cut twice. Read your network statements, pick the method that matches how you are actually paid, and apply it consistently across the whole year.
Allowable Expenses for Mortgage Brokers
An expense is allowable when incurred wholly and exclusively for the business. For a broker the list is dominated by compliance, software and marketing rather than equipment.
| Expense | What qualifies | Notes |
|---|---|---|
| FCA fees and levies | Annual FCA fee, FSCS and FOS levies where you pay them directly | Allowable business cost; FCA fines are not |
| Network / AR split | The percentage your network or principal retains | Deduct the split, report income gross (see above) |
| Professional indemnity insurance | PI cover required to advise | Fully deductible |
| Sourcing and CRM systems | Twenty7tec, Mortgage Brain, Iress, Smartr, broker CRM | Subscriptions fully deductible |
| Lead generation and marketing | Paid leads, comparison-site listings, website, ads, branding | Allowable where it promotes the trade |
| Training and CPD | CeMAP, CeRER, structured CPD that maintains your competence | Training into a brand-new trade is not allowable |
| Home-office costs | HMRC flat rate, or a fair proportion of heat, light, broadband, rent or mortgage interest | Use the larger fair deduction |
| Travel and mileage | Mileage to client meetings, lender BDM visits, valuations | 45p/25p approved mileage; ordinary commuting is not allowable |
| Phone and communications | Business mobile, VoIP, call recording for compliance | Exclude the private share |
| ICO data protection fee | Annual ICO/DPA registration | Required as you handle client data |
| Accountancy and bank fees | Bookkeeping, Self Assessment, business banking | Fully deductible |
Compliance Costs Are the Big Ticket
For most brokers the FCA fee, the network split and PI insurance together dwarf any equipment spend. These are easy to forget because they feel like the cost of being regulated rather than a business expense, but every one is allowable. The same goes for sourcing systems and call-recording or CRM software that compliance effectively forces on you.
What You Cannot Claim
The private share of dual-use broadband, phone and car must be excluded. FCA fines or regulatory penalties are never allowable. Everyday business clothing is not deductible even if you dress smartly for client meetings. And entertaining clients or introducers (taking an estate agent to lunch to win referrals) is specifically disallowed for tax even though it is a normal business cost.
- Procuration fee
- The commission a mortgage lender pays a broker for introducing and arranging a mortgage that completes, usually a small percentage of the loan. For a self-employed broker a procuration fee is trading income, taxed as self-employment profit through Self Assessment. It is taxable when the case completes and you become entitled to the fee under the accruals basis, even if the network or lender settles the payment later. Any network or appointed-representative split is then recorded according to whether you are paid gross or net of that share.
Worked Example: A Broker on £72,000 of Commission
Take a directly authorised broker turning over £72,000 of proc fees and client fees, operating from a home office with a small marketing budget.
Income: £72,000 (proc fees £58,000, client fees £9,000, protection commission £5,000)
Allowable expenses:
- FCA fees, FSCS/FOS levies and ICO registration: £1,600
- Professional indemnity insurance: £1,400
- Sourcing systems and CRM subscriptions: £2,200
- Lead generation, website and marketing: £6,000
- Home-office actual-cost proportion: £1,500
- Mileage to clients and lenders: £1,300
- Business phone and call recording: £700
- Accountancy and bank fees: £900
- Total expenses: £15,600
Taxable profit: £72,000 minus £15,600 = £56,400
Income Tax: £37,700 at 20% = £7,540, then £6,130 at 40% = £2,452, total £9,992
Class 4 NIC: £37,700 at 6% = £2,262, then £6,130 at 2% = £123, total £2,385
Total tax and NIC: about £12,377 for the year. This broker has tipped into the 40% band, so any extra proc-fee income above the threshold is taxed at the higher rate plus 2% NIC. Run your own commission and cost figures through the sole trader tax calculator to see where you land, and use the multiple-income calculator if you also draw a salary or rental income.
A mortgage broker's tax return rarely fails on the expenses. It fails on timing and the network split. Pin every fee to its completion date and decide once whether you book commission gross or net.
VAT for Mortgage Brokers
This is where broking differs sharply from most trades. Arranging regulated mortgage contracts and acting as an intermediary for credit is generally a VAT-exempt financial service. That means the core of your turnover, procuration fees and arrangement fees for placing a mortgage, is exempt rather than standard-rated. The practical effect is that most brokers do not register for VAT even when turnover sails past the £90,000 threshold, because the threshold applies to taxable (standard or zero-rated) turnover, not exempt income.
The trade-off is that you generally cannot reclaim VAT on your costs, so VAT on software, marketing and PI insurance is simply part of the expense you deduct for Income Tax. Watch the edges, though: some income may be standard-rated, such as fees for general financial advice that is not intermediation, non-regulated introductions, or certain referral and admin services. If a meaningful slice of your income is standard-rated and tops £90,000 on a rolling 12-month basis, registration can be triggered, and a partial-exemption calculation may apply. VAT on financial services is genuinely complex, so confirm your specific mix with an accountant rather than assuming you are fully exempt.
Brokers Who Also Own Property or Take Dividends
Plenty of brokers build a buy-to-let portfolio or run alongside a limited company. Rental profit goes on the SA105 property pages, and mortgage interest on those properties no longer gets a full deduction: relief is restricted to a 20% tax credit, which hits higher-rate landlords hardest. The old Furnished Holiday Lettings regime was abolished from April 2025, so there is no longer a special tax-favoured category for short-term holiday lets. If you draw dividends from your own company, the dividend allowance is £500 for 2026/27 with rates of 10.75%, 35.75% and 39.35%; model the mix with the dividend tax calculator. A broker who arranges development finance and is paid through the construction supply chain should also check whether any income falls under the Construction Industry Scheme via our CIS subcontractor guide, though pure broking sits outside CIS.
MTD for Income Tax: What Changes for Brokers
Making Tax Digital for Income Tax replaces the once-a-year return with quarterly digital submissions and a year-end finalisation. The thresholds are based on gross income, not profit:
- April 2026: Combined trading and property income over £50,000
- April 2027: Over £30,000
- April 2028: Over £20,000
For a busy broker this catches you early, because the test is on gross commission, not the much smaller net profit after your network split and costs. A broker turning over £70,000 of proc fees but netting £35,000 is still in scope from April 2026 on the £70,000 figure. In practice you will record each completed case and fee digitally as it lands and send HMRC a summary every quarter. The upside is that a clean digital pipeline tied to completion dates removes exactly the timing guesswork that trips brokers up today. Our guide to MTD for sole traders walks through the quarterly rhythm.
Common Mistakes Mortgage Brokers Make
Taxing fees when paid, not when earned. Under the accruals basis a proc fee belongs to the tax year the case completed, even if the network pays you the following month.
Double-counting the network split. Recording income net of the network cut and also claiming that cut as an expense deducts it twice. Pick gross-and-deduct or net, and stick to it.
Ignoring clawbacks on protection commission. Indemnity commission that is later clawed back reduces your taxable income; failing to back it out overstates profit.
Assuming you must register for VAT over £90,000. Most broking income is VAT-exempt, so high turnover alone rarely triggers registration; check your standard-rated income separately.
Under-claiming compliance costs. FCA fees, the network split, PI insurance and sourcing systems are all allowable and are usually a broker's biggest deductions.
People also ask
Quarterly expenses under MTD: the £90,000 rule
If your annual business turnover is £90,000 or less, HMRC lets you report a single consolidated expenses total in each Making Tax Digital quarterly update instead of breaking expenses down into itemised categories. Most self-employed mortgage broker businesses are under this threshold, so a quarterly update can be as simple as two figures: total income and total expenses. You still need to keep digital records of each individual expense - the relaxation only changes how much detail goes into the quarterly update itself.
Frequently asked questions
Calculators for mortgage brokers
Helpful guides
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