The challenges in obtaining the UK Tier 1 Entrepreneur visa and staying compliant with the rules

10 March 2015

“Britain is open for business” – a campaign driven by many successive UK governments attracting talented entrepreneurs worldwide to set up or invest in an existing business in the UK. The Tier 1 Entrepreneur visa is the natural visa to obtain for those wishing to start or invest in a business they will actively be involved in running in the UK.

To qualify under this route, you must show you have access to at least £50,000 in capital from a registered venture capital firm, seed funding competition or government department or £200,000 of personal wealth, which can include third party backing.

The injection of private sector talent and entrepreneurial vigour has boosted the growth of many industries in the UK and businesses such as tech start-ups have thrived in the era of Tech City mania. While there is definitely encouragement for entrepreneurs to bring business to the UK, recent statistics show otherwise with a high number of refusal rates for Tier 1 (Entrepreneur) applicants. This is partly due to the introduction of the subjective “genuine entrepreneur test”, which is the UK government’s response to counter abuse under this immigration category. However, the test can also be a challenging one for genuine entrepreneurs and the announcement of the Immigration Rule changes of 6 April 2015 has further tightened up the requirements:

  • It will be a mandatory requirement for initial applicants to provide a business plan as part of their application. It was previously not compulsory, though caseworkers often requested the business plan to help establish if the applicant’s business proposal was a genuine one.
  • Following the theme in protecting abuse under this immigration category, applicants will be required to provide evidence of the source of funds if the funds have been held in the applicant’s account for less than 90 days before the application is made.
  • The “genuineness test” has now been extended to applicants applying for extensions and indefinite leave to remain (settlement) applications. It is envisaged that applicants will need to be more creative with supplying additional evidence to demonstrate their business is “genuine” and that they are running a credible business in the UK.

The above is aimed to source the genuine entrepreneurs who can demonstrate they have sound business acumen; extensive background experience; and a viable business proposition. For individuals wishing to obtain the Tier 1 (Entrepreneur) visa, the vibe seems to be “Britain is open for business”, but only if you can show a high degree of genuineness and entrepreneurialism.
So, let’s say you have ticked all the boxes with an amazing business plan and you can demonstrate you are the “genuine” entrepreneur the UK is looking for (and you even have an entrepreneur team member applying with you to jointly invest the £200,000) – you get the visa, but what next…

They say starting a business is hard but maintaining a business is harder and the Tier 1 (Entrepreneur) Immigration Rules seem to reflect exactly that. Keeping compliant with this visa is no easy task. Here are some questions you should think about:

Have you been appointed as a director of a new or existing company and notified Companies House or registered as a self-employed person within 6 months of the visa issue date or your date of entry in to the UK?

This is the key requirement which you will need to consider almost immediately. You must also consider any duties and obligations attached to your role in the new or existing business. Directors of companies incorporated in England & Wales, for example, owe duties to the company and, in some circumstances, to the company’s shareholders, employees and creditors. A breach of such duties may result in civil or criminal penalties so it is very important that you understand your duties and liabilities if you are appointed a director of a UK company.

Have you established or invested in a business in the UK?

Before you establish or invest in a UK business, there are various matters that you will need to consider. Have you decided which structure or corporate vehicle is most appropriate for you and for your business? If you wish to set up a small, owner-managed business but want to limit your liability, for example, you might consider incorporating a company limited by shares. We can advise on the most appropriate structure and put you in touch with an accountant/tax advisor who can advise in respect of tax and associated registrations from a company perspective.

If you wish to invest in an existing UK business, you need to ensure your interests are well protected. You should consider the existing constitutional documents (the articles of association, memorandum of association and any other associated documents) of the company and any shareholders’ agreement already in place. If you are contemplating lending money to a company, or making an equity investment, you should ensure that you fully understand your rights and that these are documented appropriately.

Have you invested the £200,000 into a UK business?

You must invest your £200,000 in a new or existing UK business in one of the manners prescribed by the Immigration Rules. Whether you do this by way of share capital or a director’s loan, you need to consider carefully how best to protect your commercial interests while staying within bounds of the Immigration Rules.

Have you created employment for two settled workers or more who have been employed for at least 12 months each? (Remember – paying yourself a salary does not count!)

The employment created must be full time and the employees must be paid at least national minimum wage. The employees must also be settled workers, who are British citizens, EEA nationals or individuals with settled status in the UK. There are also transitional arrangements for applicants who obtained their Tier 1 (Entrepreneur) status before 6 April 2014, where they can rely on combined periods of employment of 24 months from two or more employees.

As well as ensuring you meet the immigration requirements, there are statutory duties and liabilities you should consider as an employer amongst other employment aspects. From drafting employment contracts to advising on business protection, we can work with our Employment team to ensure the right measures are in place for your business.

So, you think you can answer “yes” to the questions above? Well you need to think about evidencing this and, unsurprisingly, the evidential requirements of the Tier 1 (Entrepreneur) rules are equally strict and onerous. The Tier 1 (Entrepreneur) route is one of the complicated areas of immigration. With the Immigration Rules changing so frequently and subtly, ensuring you remain compliant as a Tier 1 (Entrepreneur) migrant should be a key objective for you and your business.

Further information

Should you have any questions regarding the Tier 1 (Entrepreneur) visa, its requirements and/or any questions about setting up or investing in a business in the UK, please contact a member of our immigration and corporate & commercial teams.

We routinely advise start-ups and existing businesses and you may find our recent blog ‘Top tips for start-ups - getting to grips with legal issues’ helpful.

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We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

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