Entrepreneurs: investing funds prior to making your initial application
Tier 1 (Entrepreneur) migrants are required to show that they have access to either £200,000 investment funds or £50,000 investment funds where they are switching from Tier 1 (Graduate Entrepreneur) or have funds from a specific source such as a seed funding competition. There are strict specified evidence requirements to show that the funds are available and this can be met, in the case of someone applying for Entry Clearance, through:
- Funds held in the Applicant’s own account in the UK;
- Funds held in the Applicant’s own account outside the UK;
- Funds held in the account of a Third Party in the UK;
- Funds held in the account of a Third Party outside of the UK;
- Funds which have already been invested into a UK business;
- Any combination of the above.
This article will look at why Entrepreneur applicants might want to consider investing some or all of their funds prior to making their application as well as some of the common pitfalls in doing so.
Why Invest before Applying?
As has been addressed in previous articles, one reason to invest before making your application is if you can’t meet the evidential requirements for holding investment funds, for example if you bank will not write the required letters. However, there are also good reasons why, even if you don’t have to invest your funds in advance, you might choose to do so anyway.
Aside from the evidential requirements, since January 2013, the Entrepreneur Rules have mandated that applicants demonstrate that they are genuine entrepreneurs. This means that the Entry Clearance Officer must be satisfied that:
(i) the applicant genuinely intends and is able to establish, take over or become a director of one or more businesses in the UK within the next six months;
(ii) the applicant genuinely intends to invest the money referred to in Table 4 of Appendix A in the business or businesses referred to in (i);
(iii) that the money referred to in Table 4 of Appendix A is genuinely available to the applicant, and will remain available to him until such time as it is spent for the purposes of his business or businesses;
(iv) if the applicant is relying on one or more previous investments to score points, they have genuinely invested all or part of the investment funds required in Table 4 of Appendix A into one or more genuine businesses in the UK;.
(v) that the applicant does not intend to take employment in the United Kingdom other than under the terms of paragraph 245DC.
The location of the funds is relevant to many of these considerations. Most obviously, that mentioned in (ii) above, requires the ECO to consider if the Applicant genuinely intends to invest the money into UK business(es). Plainly, if the money has already been demonstrably invested into the business, this is clear evidence that the applicant does in fact intend that the money be transferred to the business.
Equally in relation to (iii), having invested the money provides some reassurance for the decision maker that the funds will remain available until such time as they are spent for the purpose of the business. Funds which are already in the business are more likely to remain available to the business than those sitting in a personal account and even more so if that personal account belongs to a third party rather than the Applicant. The more steps that have to happen in order for the funds to be spent, the more risk there is in a decision maker granting an application. However, if the funds are already invested and there is, for example, accounts which show those funds, share certificates or a director’s loan agreement setting out the terms of the investment, there are consequences if the funds are not spent for the purpose of the business.
It can also be a compelling indication that an applicant genuinely intends to run their business and not take other employment, as they have already taken a financial risk in making their investment and have a stake in the success of their intended business.
It should be noted that making an investment alone will not guarantee that an applicant will be found to be genuine, but it does make a statement as to their intention which can be helpful in demonstrating genuineness.
Risks with this approach
As with most issues within the Points-based system, there are some potential problems in relation to evidence required when investing prior to making the application. This includes that you need to registered as a director of the business when you invest, and ideally should be a signatory on the company bank account (while the guidance states this is mandatory, the rules are less clear). Many banks are unwilling to open an account or add someone as signatory without immigration status in the UK, due to their internal due diligence procedures and UKVI checks that they are now required to carry out. This may make it problematic for someone to obtain the evidence required.
There are also additional expenses that you can expect from doing this. For example, one of the documents that you will need is the accounts showing the investment. If the business is very new, you may not yet be required to prepare accounts, but will need to complete this task early, at additional expense to satisfy the Home Office.
Getting the required documents in the UK, and then getting them to wherever you intend to submit the application is the third potential problem in investing first. This is easily overcome for those who have business partners in the UK, but can cause logistical problems for those who are trying to run their business remotely from abroad while preparing their applications.
The final matter for individuals to consider is the risk to their investment if their Entrepreneur application is refused and the tax and legal implications of both transferring funds and becoming a company director in the UK. Anyone considering this option may want to seek independent financial and tax advice prior to taking any action.
However, these problems are not usually insurmountable for applicants, and generally the advantages of being show your commitment to your business through making an investment will outweigh any downsides of doing so.
Contact Our Entrepreneur Immigration Lawyers
If you would like any further advice or information about the Tier 1 (Entrepreneur) category or would like help making an application then please email Gillian McCall. Alternatively, you can reach our immigration barristers on 0203 617 9173 or via our enquiry form.