How to extend your Tier 1 (Entrepreneur) visa: investment

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In order for a Tier 1 (Entrepreneur) to extend their visa in the UK, they need to meet three broad requirements

  • Business activity
  • Job creation
  • Investment

In this post we look at the investment requirement. Again, we focus on company directors as this is how the majority of Tier 1 (Entrepreneurs) operate.

Please note that this guide is correct at the time of writing (December 2019). The immigration rules change regularly. If you are reading this and it is not December 2019, then check the current rules.

The investment requirement

When applying for leave as a Tier 1 (Entrepreneur), applicants who had not previously invested the required funds in their business, would need to have shown that they had £200,000 (or £50,000 in certain circumstances) available for investment in their proposed venture.

In order to qualify for extension in the route, Tier 1 (Entrepreneurs) need to show that they have (Appendix A, Table 5, Row 1):

invested or has caused investment to be made by one or more third parties,[funds] totalling at least £200,000 (or £50,000 if they were awarded points for £50,000 funding or investment in their last grant of leave) in cash directly into one or more UK businesses

There are essentially two parts to this: funds going into the company, and then the money being spent. In both, regard must be had to the prescriptions set out in the immigration rules.

We do not cover here investments made by venture capital firms, seed funding competition or UK government departments, for which there are separate rules.

Transferring funds to the business

Funds must be transferred to the business in one of the ways prescribed in the rules. This definitely includes by way of a director’s loan or by issue of shares.

The availability of a third method of investment – so-called ‘direct cash investment’ – was thrown into doubt by a recent court decision, and which we cover in Methods of investment: important guidance for entrepreneurs.

We concentrate here on the two methods of transfer which we know for sure are acceptable.

Director’s Loan

Tier 1 (Entrepreneurs) who are registered as directors of a company can invest their funds by way of a director’s loan. The requirements of the rules are as follows:

(i) it must be shown in the relevant set of accounts provided

(ii) where the investment was made after 19 November 2015 and the date of application is before 19 November 2021, the investment must be shown through readily identifiable transactions in the applicant’s business bank statements, which must clearly show the transfer of this money from the applicant to their business, and

(iii) the applicant must provide a legal agreement, between the applicant (in the name that appears on their application) and the business

The director’s loan (legal) agreement must be show

(1) the terms of the loan

(2) any interest that is payable

(3) the period of the loan, and

(4) that the loan is unsecured and subordinated to other creditors’ loans to the business

If possible, we advise clients to make the investment in as small a number of transactions as possible, as this reduces the burden of tracking the transfers made to the company bank account.

When investing by way of a director’s loan, the accounts must show the investment in money made directly in the business by the applicant, in their own name

Share capital

Tier 1 (Entrepreneurs) can also invest funds in return for issue of shares in their company. If invested via this method:

the [company’s annual] accounts must show the shareholders, the amount and value of the shares (on the date of purchase) in the applicant’s name as it appears on their application. If the value of the applicant’s share capital is not shown in the accounts, then a printout of the company’s register of members from Companies House must be provided

So again the focus is on the company’s end of year accounts.

Third party investment?

It is possible for third parties (other than venture capital firms, seed funding competition or UK government departments, for which there are separate rules) to invest in the business.

However, it will only be possible for a Tier 1 (Entrepreneur) to rely on this third party investment where the accounts confirm that the investment was made as a result of the applicant’s activity.

Note that investment will not count where the third party is another Tier 1 (Entrepreneur) Migrant, or that migrant’s business or close family member.

Transferring funds out of the business: permissible spending

Funds cannot simply be invested in the company bank account and then sit there: they must be spent. As stated in the guidance

Money deposited in a bank account, even if it is in a United Kingdom business bank account, is not counted as investment in business. The money should be used in the business, for example to encourage growth or expansion, or to improve services or products.

Funds which have been spent by the business of a Tier 1 (Entrepreneur) relating to any residential accommodation, property development or property management will not count. This means

(1) any development of property owned by the applicant or their business to increase the value of the property with a view to earning a return either through rent or a future sale or both, or

(2) management of property (whether or not it is owned by the applicant or their business) for the purposes of renting it out or resale.

For the avoidance of doubt, [this] requires that … business income is generated from the supply of goods and/or services, and not derived from the increased value of property or any income generated from property, such as rent.

The immigration rules also helpfully explain that ‘Invested’ or ‘spent’ excludes spending on:

(1) the applicant’s own remuneration,

(2) buying any business from a previous owner, where the money ultimately goes to that previous owner

(3) investing in businesses, other than those which the applicant is running as self-employed or as a director

(4) any spending which is not directly for the purpose of establishing or running the applicant’s own business or businesses.

Other than the accounts, there is no specific requirement in the rules to provide information or evidence relating to what the funds have been spent on.

And as statutory accounts don’t always include a list of operating expenses, I usually encourage clients to provide P&L for the full period, which usually includes an annual breakdown of its operating expenses.

Problem areas

This part of the application process is usually one of the trickiest for Tier 1 (Entrepreneurs) to navigate. They are not assisted by conflicting court decisions, poor drafting of the rules, and regular changes to the requirements.

One of the principle issues following the most recent decision of Sajjad is regarding permissible methods of investment. That is covered in our blog post: Methods of investment: important guidance for entrepreneurs.

If you think you may need some assistance with your application, feel free to call for a no-obligation chat about how we may assist.

Main image credit: Photo by Alex Lvrs on Unsplash