Brewster’s £200,000: Spending your Tier 1 (Entrepreneur) Investment Funds
The Tier 1 (Entrepreneur) rules are very clear in stating that migrants in this category must invest all of their investment funds, whether this is £50,000 or £200,000, into the business before making a Tier 1 Entrepreneur visa extension application at year three. While you can make an initial application on the basis of money which has already been invested in the business and is sitting in the business bank account, this will not be sufficient at the extension application stage. By year three, all the money must have been spent for the purpose of the business.
‘Available’, ‘Invested’ and ‘Spent’
The Immigration Rules at paragraph 245D(c) define money that is in the financial accounts of a UK incorporated business as being available to the migrant if he or she is a director of that business. The specified evidence required to demonstrate that these funds are available includes the business accounts which have been prepared by an accountant and other documents to show that the business is trading and the applicant is a Director of that business. Applicants making their initial applications only need to demonstrate that the money is available to them.
At the extension stage, the requirement is that money has been invested in the business. Even though the same documents are necessary to meet the requirement above, the actual position of the company must be different. The Immigration Rules at paragraph 245D(c)(ii) refer to ‘invested’ or ‘spent’ as being interchangeable definitions.
The modernised guidance at page 67 and the policy guidance at page 62 both provide further clarification:
‘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 policy guidance continues:
‘The money should be used in the business to encourage growth or expansion, to improve services or products and to ensure the business is profitable.’
What does this mean for Entrepreneurs?
The requirement therefore must be interpreted to mean that by the third year of the business, the investment funds have been used by the business.
The Immigration Rules do not mandate spending in any particular way, but there are types of spending that will not be considered as an investment. This includes spending on the migrant’s own remuneration, investment in other businesses and any spending which is not directly for the purpose of establishing or running the business.
This presents a number of issues for migrants.
First, is actually spending the funds. While some businesses may need funds in excess of £200,000 just to get started, other businesses simply do not require this much investment. A genuine, legitimate business with low overheads could be successfully run for a period of three years without needing to spend a full £200,000, even with two employees. Despite this, the Rules require that the money is spent. This will potentially leave migrants re-enacting scenes from Brewster’s Millions as they try to find ways to spend their funds which are directly for the purpose of the business.
This creates a second problem for the business. Spending the totality of the investment funds by year three, could have wiped out the capital reserves of a business while it is still in its infancy. The statistics frequently quoted are that 90% of start-ups fail and the number one reason for this is lack of capital for the day to day running of the business. But, if a business has rushed to spend all the available capital in ways that weren’t necessary by year three, what happens in year four?
Thirdly, it is not clear the extent to which an Immigration Officer reviewing an application will go behind the accounts of a business in deciding whether or not spending was directly for the purpose of running the business. There are some things that will be obviously for the purpose of running the business such as stock or office equipment, but other expenses may be indirectly for the purpose of the business or partly for the business and partly for the individual. HMRC has rules and guidelines on how these matters should be approached from a Tax perspective, but there is nothing to say that UKVI would take the same approach. As with most subjective tests in the Immigration Rules, this is likely to come down to the individual judgement of an Immigration Officer with little training on the matter.
The fourth problem is the evidential requirements. To meet the specified evidence requirements, all that is needed to show where the money is, is the business accounts which have been prepared by an accountant. The information that small companies and micro-entities are required to provide in their accounts is limited. Accounts do not typically specify individual items but instead show global figures. It is not clear how, from this specified evidence an Immigration Officer is supposed to consider whether all of the £50,000 or £200,000 has been spent, how it has been spent and confirm that it has all been spent directly for the purpose of running the business.
To establish these matters the Immigration Officer is likely to need more evidence, but the Immigration Rules do not specify what this is. This may mean that after an application has been submitted, UKVI may make a request for further evidence to be submitted under paragraph 245DD(m) of the Immigration Rules. This could be for evidence that the applicant does not have and does not have sufficient time to get, meaning that their application is refused because they have not provided a document that the Immigration Rules does not specify that they need.
The Rules for Tier 1 (Entrepreneur) migrants are complicated, poorly drafted and subject to frequent change. Any application to enter to remain in the category needs to be very carefully prepared against the rules in force at the time that the application is made. For further advice or assistance with a Tier 1 (Entrepreneur) application, appeal or administrative review, please contact our specialist entrepreneur visa immigration barristers on 0203 617 9173 or firstname.lastname@example.org.