Tier 1 Entrepreneur - permitted means of investment

23 May 2019

The Tier 1 Entrepreneur route, although closed to new entrants, is still in existence for those already on the route, and we will therefore still have to engage with it for a while yet.

Briefly and basically, the route enabled an entrepreneur who could show that they had a good business idea and sufficient funds to invest in the business to acquire an initial visa on that basis. They might subsequently, after three years, be eligible to apply for an extension visa for two years, and thereafter acquire settlement.

The two main requirements for an extension visa are, firstly, that the business has created at least two full-time jobs or equivalent and, secondly, that all the investment funds have been invested into the business. In many - but not all - cases the amount is £200,000.

Things are quite a struggle for Tier 1 Entrepreneurs. The legal requirements are onerous and complex, and the visa refusal rate is high. Things can go wrong at any stage, and sometimes unexpectedly so. And, to make matters worse, the right of appeal to the Immigration Tribunal for unsuccessful visa applicants has been removed, and replaced with Administrative Review - a process carried out by UK Visas & Immigration, not by an independent judicial body. Unsuccessful applicants who want to access the higher courts have to go down the relatively cumbersome Judicial Review route.

A recent Judicial Review case in the Court of Appeal called "Sajjad" illustrated some of the difficulties and it also caused, to borrow a phrase, some scratching of heads.

Mr Sajjad applied for a Tier 1 Entrepreneur extension visa. It seems that he satisfied the job creation criteria but, according to the Home Office, he did not satisfy the funds investment criteria. This is not to say that he had not invested sufficient funds. In his case the amount was a mere £200,000 and the evidence clearly showed that he had spent about £500,000 on his business. But, according to the Home Office, not in the correct manner.

This is a classic situation. The entrepreneur is obviously a genuine and committed entrepreneur who wants to make their business succeed. But allegedly they did not follow the rules quite correctly and, as a result, they face the real possibility of having to leave the UK and abandon running their business.

This, if it actually happens, is a very harsh outcome and it does not seem a great deal "fair". And it also seems rather to defeat the purpose of the Tier 1 Entrepreneur scheme, which is to encourage good businesspeople to come to the UK and stimulate the economy.

But this way of thinking has not done well in the courts. The courts have often said that the Home Office is entitled to write fiendishly complicated rules if it wants to, and that the courts have to respect the rules - which have the force of law behind them - and what they say. In one previous case a judge said that "occasional harsh outcomes are a price that has to be paid for the perceived advantages of the PBS" - ie the points-based system, of which the Tier 1 Entrepreneur scheme is part.

We really wonder what these "perceived advantages" might be in practice but, anyway, the Court of Appeal in the "Sajjad" case reminded itself of this and acted accordingly: the rules must be fully met for the case to succeed, and there is very limited scope for flexibility.

But it seems that this case may - or possibly may not - have developed an important new principle about Tier 1 Entrepreneur investment.

The Home Office lawyer told the court that there are only two possible appropriate methods of investment: by way of investment in company shares or by way of director’s loan to the company. The court appeared to accept what he said, but the wording of the court’s decision was nonetheless rather oblique.

This case suffered from something of a "time warp" factor, which might not have helped. The original Home Office refusal decision had been made as long ago as 2015, and since then several versions of the relevant immigration rules and associated policy guidance have come and gone.

But an examination of the rules existing in 2015 (which were the ones relevant to the court’s decision) suggest that there might be a third option: ie direct investment of funds into the company, not by way of director’s loan. But the court was not sympathetic to this idea. The court preferred the Home Office lawyer’s assertion that such an investment of funds was, by its very nature, a director’s loan, even if not described as such. And Mr Sajjad’s investment had not met the detailed criteria for a director’s loan, so he had fatally fallen foul of the rules, and he was thus unsuccessful.

We feel sorry for Mr Sajjad and we also feel confused, because rules and policy guidance now displayed on the Home Office website seem to clearly envisage the possibility of direct investment into the company for Tier 1 Entrepreneurs. If the court’s decision means what it seems to mean then this material needs to be amended.

However, as we earlier suggested, the court’s decision was not entirely clear. The Court of Appeal has power to strike down immigration rules if they think they are unlawful or irrational but it did not do so in this case.

We hope that some clarification about this will emerge.

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