October 03, 2019

Visa Challenges Confront Entrepreneurs Bringing Business to the U.K.

As the U.K. seeks to attract innovative new businesses and bright young entrepreneurs, a challenging visa system can detract from that goal. Recent media reports surrounding Prime Minister Boris Johnson and a U.S. businesswoman, as well as concerns of fraudulent entrepreneur visa applications, shed new light on the significant difficulties entrepreneurs can face when navigating the U.K.'s visa system.

The Sirius Programme, run by U.K. Trade and Investment (now the Department for International Trade), used to be one of the programmes through which 200 Tier 1 Entrepreneur visas were available to the people behind new companies. Extra funds and support could be awarded through the programmes to help kickstart companies and create investment in the U.K.'s startup sector. There were over 2,000 applicants for this scheme, and there are now allegations of a conflict of interest and favouritism regarding the decision to admit Jennifer Arcuri and her company Innotech into the Sirius Programme.

Tier 1 Entrepreneur Closure

Applications for the entrepreneur visa that Arcuri was awarded were closed on 29 March 2019. In just the past month a number of people have been convicted of creating companies fraudulently in order to gain access to the entrepreneur's visa route for 900 people who would not otherwise have qualified. From an HMRC investigation that started in 2011, the court found that the group fabricated payslips so that the relevant authorities believed that the applicants each had access to at least £50,000 in investment funds, and also temporarily transferred money into applicants' bank accounts to back up those claims.

Tier 1 Investor

The Tier 1 Investor visa route used to work alongside the entrepreneur route but was saved from an equivalent cancellation last March. To qualify, an applicant must have £2 million to invest for five years. Within three months of entering the U.K. on this visa, the applicant must invest this money in one of a specified number of means. Since the March 2019 changes, applicants must now have held this money for at least two years or be able to provide the source of their funds.

Innovator and Start-up

This lacuna was supposed to be filled when the government introduced the replacement for the Tier 1 Entrepreneur visa. Two new categories were created: “Innovator” and “Start-up.”

The innovator visa requires an applicant to have at least £50,000 in investment funds. The applicant's business idea must also be endorsed by an approved body that will consider whether the idea is a new idea with viability and potential for growth. It was thought that, since Home Office case workers are not experts in the business world, it would be preferable to have the viability of a business idea assessed by an organisation with experience in the field. Home Office guidance to the approved bodies regarding how to administer this has been limited.

Similarly, the start-up visa is a replacement for the Tier 1 Graduate Entrepreneur scheme. To qualify for this visa, the applicant must be endorsed by a U.K. higher education institution or a business organisation that has a history of supporting U.K. entrepreneurs. They must also be able to show that the business idea is a new idea, innovative and viable for growth.

Implications of Changes

Although these categories are relatively new, their initial performance has raised questions as to their effectiveness. According to Home Office statistics, in the second quarter of 2019 there were only four applications for the innovator visa. In contrast, the Tier 1 entrepreneur visa attracted 1,900 applications in 2018. The start-up route fared marginally better, with 32 applications in its first quarter.

These numbers suggest that the innovator route could be flawed. To obtain a recommendation from a business organisation the applicants would have to participate frequently in business accelerator programmes, which often require entrepreneurs to relinquish a significant amount of equity in their business. For a route aimed at experienced foreign entrepreneurs, these requirements erect barriers that some may not be willing or able to overcome. The approved endorsing organisations are largely tech incubators and accelerators, which require placement onto their schemes and have a regional focus. If the applicant's business is outside of the tech sector and they do not have £2 million at their disposal it may be difficult for them to be approved for a visa, irrespective of how beneficial their future business may be for the U.K.

Whether the visa route is called entrepreneur, investor, innovator or start-up, the fact remains that decisions to grant a visa to an applicant based on a business idea, or the potential to bring in further investment, will always have an element of subjectivity. The government tried to address this by bringing other organisations and higher education institutions into the decision-making process. However, it appears that these organisations may not have been sufficiently consulted in order to effectively exercise their new duties.

As the Arcuri/Innotech case illustrates, new companies will have vastly different resources, plans, ambitions, backgrounds and expertise. Bringing in an outside organisation to assess the viability of an idea adds yet another layer of decision-making, which in turn may reward an applicant's networking and connections rather than the effectiveness of their idea. Further work must be done to refine the visa system in order to facilitate the development of the best and brightest ideas within the U.K. However Brexit is resolved, the immigration system will need to be changed, and perhaps this provides an opportunity for the government to go back to the drawing board and improve these immigration rules.

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