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.
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.
As a sole trader you pay Income Tax on profit: total commission and fee income minus allowable expenses. For 2025/26 the personal allowance covers the first GBP 12,570, then you pay 20% to GBP 50,270, 40% to GBP 125,140 and 45% above, with the personal allowance tapering away between GBP 100,000 and GBP 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 GBP 12,570 and GBP 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.
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.
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.
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.
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.
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 |
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.
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.
Take a directly authorised broker turning over GBP 72,000 of proc fees and client fees, operating from a home office with a small marketing budget.
Income: GBP 72,000 (proc fees GBP 58,000, client fees GBP 9,000, protection commission GBP 5,000)
Allowable expenses:
Taxable profit: GBP 72,000 minus GBP 15,600 = GBP 56,400
Income Tax: GBP 37,700 at 20% = GBP 7,540, then GBP 6,130 at 40% = GBP 2,452, total GBP 9,992
Class 4 NIC: GBP 37,700 at 6% = GBP 2,262, then GBP 6,130 at 2% = GBP 123, total GBP 2,385
Total tax and NIC: about GBP 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.
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 GBP 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 GBP 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.
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 GBP 500 for 2025/26 with rates of 8.75%, 33.75% 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.
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:
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 GBP 70,000 of proc fees but netting GBP 35,000 is still in scope from April 2026 on the GBP 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.
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 GBP 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.
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