These changes belatedly follow policy guidance provided by the Migration Advisory Committee (MAC) to the Home Office in a report dated 29 October 2015. The new rules share the MAC’s general conclusion that the strength of the Tier 1 (Graduate Entrepreneur) route that should be extended to the Tier 1 (Entrepreneur) route was that the business ideas underpinning these applications were endorsed by public sector bodies that the Home Office can trust.
Therefore, similar to how Tier 2 extends duties and responsibilities to employers, the Start-up and Innovator visa routes look to do the same with universities and other elected endorsing bodies.
End of the Tier 1 visas
From 29 March 2019, no new Tier 1 (Entrepreneur) applications will be accepted, and no further endorsements will be available for the Tier 1 (Graduate Entrepreneur) visa. Few would expect a rush on applications in these categories given the proposed changes introduced with the Innovator and Start-up visas (Not needing £200k will be a deciding factor for many – see table below).
However, within the changes to the immigration rules being introduced on 06 April 2019 are changes to extension applications and indefinite leave to remain applications for those already on the visa routes which introduce a new requirement to demonstrate the progress of the migrant's business(es) and the entrepreneur's role within the business. This presents an added problem for any business that is loss-making in its first 3-5 years (much like any of our household names in the tech world), but a positive move in the prevention of entrepreneur visas being issued to individuals relying on the entrepreneurialism of others.
Key changes between the old and new visa routes:
Tier 1 (Graduate Entrepreneur)
- Recent degree graduate from a UK HE institution;
- HE institution is an authorised endorsement body for the programme;
- HE institution endorses the applicant’s business proposal on condition of it being ‘genuine‘ and ‘credible’;
- Employment allowed;
- Can switch into the Tier 1 (Entrepreneur) route with £50k of cash funds instead of £200k;
- 1 year visa, extendable to 2 years.
- Must be endorsed by endorsing body;
- Cannot have established a UK business prior;
- Business idea is ‘innovative’, ‘viable’ and ‘scalable’;
- The endorsing body will check-in after 6, 12 and 24 months to check for ‘reasonable progress’;
- Employment allowed;
- Can switch into the Innovator route without needing to demonstrate any investment funds;
- 2 year visa.
Tier 1 (Entrepreneur)
- Access to £200k cash funds;
- Teams of up to two applicants can apply simultaneously sharing the above £200k funds;
- Cash funds need to be in applicant’s possession, accessible by a VC firm or gifted by a third party for no return;
- Cash funds need to be invested in company with no return for the individual (e.g. interest on a loan, or own remuneration);
- Can count funds invested pre-application;
- Genuine intention and ability to invest the full funds into a UK business;
- English language level of B1;
- Genuine and credible business plan;
- No employment allowed;
- 3 year visa, extendable by a further 2 years, with ILR after 5 years in most cases;
- Extension granted on evidence of investing money, registering business and creating at least 2 full time jobs for settled workers;
- ILR granted on evidence of continued business activity, further/continued job creation, continuous UK residence and passing the Life in the UK test.
- English language level of B2;
- 3 year visa, with eligibility for ILR in 3 years;
- Must be endorsed by endorsing body;
- Initial applications, or extension applications (a further 3 years instead of ILR) using a new business idea require £50k cash funds;
- Business idea must be 'innovative’, ‘viable’ and 'scalable’ ;
- Teams of an unlimited number can apply simultaneously with the same idea, but each needs access to £50k;
To qualify for ILR after three years or more, the applicant needs to have achieved two of the following milestones:
- £50k invested and spent;
- Doubled customer base to a number above market competitors;
- Engagement in significant research and development with IP protected;
- Gross revenue of £1 million;
- Gross revenue of £500k, with £100k from exporting overseas;
- 10 full time jobs created;
- 5 full time jobs creating with salaries of at least £25k/PA.
- ILR also on condition of continuous UK residence and passing the Life in the UK test.
The MAC report of 2015 focused its criticisms of the Tier 1 (Entrepreneur) visa route not leading to the creation of UK businesses of significant added value to the UK. Many entrepreneurs were investing in businesses such as restaurants and cafes – ‘off-the-shelf’ franchises in some cases. These new enterprises were creating the required number of jobs, but the (lack of) economic impact verses a mandate to reduce net migration meant that the visa route had to be changed to expect more of these migrants - More in terms of ‘innovation’, ‘scale’ and ‘viability’.
Whilst not automatically translating as meaning: ‘tech’, for a business idea to succeed under the Innovator route it will need to be 'genuine' and 'original' and meet 'new or existing market needs and/or (create) a competitive advantage’.
A restaurant business could be genuine, original and meet a new or existing market need if, for example, it is offering something new, for which there is a market. However, most would see this as a route that favours tech-start-ups.
Key for this requirement will be the quality of market research into the business area in the UK - Identifying a UK market niche with an idea that has been demonstrated as successful overseas in a similar market.
'Viability' becomes the new word for the 'genuineness' test, because this is a test of the individual. Can this applicant be deemed to have the required skills, knowledge, experience and market awareness to successfully run the business?
Key here, other than the endorsement that we will examine below, is the individual’s background. This requirement is taken almost verbatim from the Tier 1 (Entrepreneur) rules of section 6A, and will inevitably rely on the applicant’s education and on having a head start within the business area.
This will be the focus of any interview that is undertaken as part of the application, and applicants will be refused where they seem divorced from the idea and plan.
This is a new element and stands to cause the most concern for entrepreneurs. Under the Tier 1 rules, entrepreneurs were only ever asked to explain the businesses start up and continued growth up to year 5. Now, the Innovator is expected to explain how the business will reach a point where, after three years, he or she can qualify for indefinite leave to remain, which entirely relates to this point of scalability.
In three years, the Innovator will have to have achieved two of the following:
- £50k investment and spend.
- Doubling of customer base in 3 years to a level higher than UK competitors.
- Engagement in significant R and D with an application for IP protection in the UK.
- Gross revenue of at least £1 million in last year.
- Gross revenue of at least £500,000, with £100k from exporting overseas.
- Job creation of 10 full-time jobs for resident workers.
- Job creation of at least 5 full-time jobs for resident workers, each with a minimum salary of £25k.
Each business plan will need to include a narrative on how it is going to achieve at least two of these criterions, and although the visa can be extended to allow more time, ideally these will be achievable within three years.
Although the Home Office is not asking applicants to demonstrate access to £200k of funding, to achieve most of the requirements listed above would involve the same, if not more, level of funds.
Who are the endorsing bodies?
HE institutions will continue to endorse business ideas for the Start-up visa, exactly like the Tier 1 (Graduate Entrepreneur) visa. However, they will be able to endorse business ideas from individuals who were not graduates from their particular university.
Both visas will also be able to be endorsed by organisations which qualify under the following criteria:
- A proven track record of supporting UK entrepreneurs, including resident workers.
- Support from a devolved or government body as being part of that body's policy objectives.
We do not have a list of these bodies at the present time, but we would imagine links to government departments such as the Department for Trade and Investment would be important.
Who can invest in these businesses?
The Tier 1 (Entrepreneur) visa had very strict rules pertaining to the source of the applicant’s cash funds. The funds had to be in his or her bank account for 90 days, invested in the company from his or her own bank account in the 12 months prior to the date of application or to be gifted by third parties on condition of that third party receiving no re-payment (unless a VC investment).
The new Innovator route allows for funds to available from a UK organisation which employs at least 10 people, or less than 10 people if the organisation can evidence the funds and have a legal representative certify the letter from the organisation required to promise the support.
There is no mention however of a condition not allowing the investing organisation to receive a return on their investment, or that the repayment of these funds is not included within the definition of being 'actively spent' in the business. This is the area of the rules that I would expect to be subject to further amendments in the near future.
For more information on starting-up a company in the UK and the best options in terms of immigration visas, contact a member of our team for a no-obligation consultation.