Consultation on the UK’s Tier 1 Entrepreneur route – does it deliver economic benefits or is it ripe for reform?

The Tier 1 Entrepreneur route has long been a bone of contention for the Home Office. Introduced as part of the Points Based System in 2008, it promised a move away from subjective decision making and towards clear, objective criteria for the assessment of applicants. Each such applicant did not need to provide the Home Office with a specific business plan or details of relevant experience they would bring to the role. They simply had to show access to £200,000 which could be invested in the UK, some English language ability, some personal maintenance funds and they were in.

During the initial three year visa, the full £200,000 (or £50,000 where the funding was being provided by a specified source, namely an FCA regulated VC firm, a UKTI approved UK entrepreneurial seed funding competition or a UK Government department) had to be invested into the business by the entrepreneur or on their behalf, the applicant had to be a director of a company or registered as self-employed and two full time jobs lasting for at least 12 months each had to be created. The nature of the business, nature of employment, level of salary (over and above minimum wage), the level of the entrepreneur’s involvement in the business and to a great extent what the money was spent on was not relevant. An applicant could obtain an extension for a further two years and, after five years, apply for indefinite leave to remain.

Unfortunately, reducing the application to a box ticking exercise made the process ripe for abuse, particularly as other routes to the UK were gradually closed off following the 2010 election, and this ultimately led to the introduction of a ‘Genuine Entrepreneur’ test in January 2013. Since then, the Immigration Rules for entrepreneurs have been subject to regular and far reaching changes, some of which apply retrospectively to those already in the scheme. The most recent raft of changes were discussed in a previous blog post.

As Home Office caseworkers and Entry Clearance Officers grapple with how to assess a ‘genuine entrepreneur’, refusal rates, particularly in certain jurisdictions, have been on an upward trend and entrepreneurs already in the UK have been confused by increasingly convoluted rules. It has become clear that neither the Rules entrepreneurs are expected to meet, nor the way in which their applications are assessed, are designed to attract the brightest and best job creators to our shores.

With the route no longer fit for purpose, the Government has called in the Migration Advisory Committee (the MAC) to review the route and report back. The MAC is a non-departmental public body which is tasked with advising the Government on immigration issues. In particular, they have been asked to consult on ‘whether the existing design of the Tier 1 (Entrepreneur) route is appropriate to deliver significant economic benefits for the UK’. In assessing this, they have been asked to look at:

• Whether the requirement to show a set level of funds available for investment (currently £200,000 or £50,000) is a good way to determine entrepreneurial ability
• Whether the existing eligibility and extension criteria are suitable for early stage business life cycles
• Reconsidering the role angel investors and crowdfunding can play
• Whether the route represents international best practice

The MAC’s consultation began on 24 March and ends on 12 June 2015. It has been asked to report to the Government by the end of 2015.

We will be submitting a detailed response to the MAC over the coming weeks and encourage all those with an interest in the Tier 1 Entrepreneur route to get involved. We are also eager to incorporate your feedback into our response (and have launched a survey – see below).

The Immigration Rules, as currently devised, do not allow genuine entrepreneurs the flexibility they need to establish and grow businesses in the UK. The high refusal rates (for example currently around 70% in China) deter applicants who otherwise are full of entrepreneurial spirit and could really contribute to the UK economy and job market. They do not reflect the rapid development of many startups, particularly those in the technology sector, and they don’t account for common sources of funding such as from angel investors and through crowdfunding websites. As such we welcome this opportunity to revitalise a route that, if properly formulated, can attract top business talent, create jobs and help to grow the UK economy.

Possible solutions

We will be asking our Tier 1 Entrepreneur clients for their thoughts over the coming weeks on how this route could be improved. Our initial thoughts on changes that would improve the route and increase its attractiveness are set out below:

• There should be greater involvement of third parties in the assessment of an applicant as a ‘genuine entrepreneur’ and of their idea for a new business. We do not feel that Home Office caseworkers and entry clearance officers are best placed to make these assessments. We would welcome the involvement of accelerators and UKTI in the process, as well as greater emphasis placed on an applicant’s ability to secure funding from, for example, angel investors.
• Applicants should be able to rely on funding from a wider range of sources, including crowdfunding and angel investors. Where they have secured this funding, there should be more flexibility on how the investment is structured and the investment should not need to be made in the entrepreneur’s own name.
• Greater emphasis should be placed on sectors where the UK wants to see growth and where such growth relies on bringing talent from outside the UK. One example of this is the technology industry. Successful technology entrepreneurs may not have as much (or any) experience in running a business and may not have the traditional background the Home Office currently looks for when assessing a ‘genuine entrepreneur’. Despite this, they may go on to found exactly the type of fast-growing startup businesses the UK is looking to attract. It is therefore important that the Immigration Rules have enough flexibility to accommodate these types of entrepreneurs and businesses.
• Ensuring the specified documents an entrepreneur needs to produce are realistic and reasonable and do not impose an overly taxing administrative burden on entrepreneurs.

How to make your views known to the MAC

The MAC wants to hear from interested parties and in particular from entrepreneurs. Responses can be submitted direct to the MAC by email (to mac@homeoffice.gsi.gov.uk) or by post (to the Migration Advisory Committee, 3rd Floor Seacole Building, 2 Marsham Street, London SW1P 4DF). 

We will also be hosting an event (by invitation only) with the MAC to discuss recommendations ahead of the consultation deadline of 12 June 2015.

We are also conducting a survey for Tier 1 entrepreneurs, their advisers and interested parties, which can be found HERE. Findings and recommendations from this will be incorporated into our response to the MAC.

In the run up to the election, the political classes are jostling to emphasise their ‘tough on immigration’ credentials while the debate as to which party can best grow the economy is also being hotly contested. This consultation will go beyond the election and is a great opportunity to show how immigration can be used as a force for good, to grow the economy and create good jobs for UK residents.

We would therefore strongly encourage entrepreneurs and their advisers to engage with the MAC’s consultation.

Further information

Should you have any questions regarding the issues raised in this blog, please contact Nicolas Rollason or Katie Newbury.

If you would like to know more about the abovementioned event, please email Helle Asquith.