Tier 1 Visas: Investor versus Entrepreneur – The Differences

Tier 1 Investor versus Entrepreneur
Tier 1: Investor versus Entrepreneur

Tier 1 Visas: Investor versus Entrepreneur – The Differences

The UK is a world-leading and desirable business destination and continuously attracts foreign investment and entrepreneurs seeking for business opportunities. The location of the UK within European markets, language and time zone have been cited as the key attractions for investors and entrepreneurs. Such individuals are often faced with a choice between applying for the Tier 1 (Investor) visa and the Tier 1 (Entrepreneur) visa and often classify themselves as both an investor and entrepreneur.

The Tier 1 (Investor) visa is suitable for high net individuals who will make a substantial financial investment in the UK. Whereas, the Tier 1 (Entrepreneur) visa “is the natural visa to obtain for those wishing to start or invest in a business they will actively be involved in running in the UK”3.

The Differences

Investment

The level of the initial investment for the Tier 1 (Investor) visa and Tier 1 (Entrepreneur) visa is one of the most notable differences. The Tier 1 (Investor) visa specifies a significant initial investment of a minimum of £2 million. You must be able to show that you are holding funds of £2 million or above, under your own unrestricted control, in a regulated financial institution. If you are not holding funds in pounds sterling, the funds must be convertible to £2 million or above.

On the other hand, the Tier 1 (Entrepreneur) visa requires a lower initial investment of at least £50,00 or £200,000. Under the £50,000 requirement, you must be able to show that you have access to at least £50,000 in capital form from a registered venture capital firm registered with the Financial Conduct Authority, seed funding competition or from a government department. You can also apply if you have already invested £50,000 in a UK business as long as you had invested the funds less than 12 months before you applied for the visa. However, under the £200,000 requirement, you must have access to at least £200,000 from your own personal wealth, by a third party or in a joint account with your spouse or partner but only if your spouse or partner are also applying for a Tier 1 (Entrepreneur) visa.

Investment options

Under the Tier 1 (Investor) visa you are only permitted to invest your funds in “loan or share capital in active and trading UK-registered companies”6 as long as the companies have a registered office or head office in the UK, have a UK business bank account, subject to UK taxation, and are doing active business. Whilst, you are not explicitly prevented from investing in your own private company that is registered and trading in the UK as your investment will count as a qualifying investment, “in practice, UK-regulated financial institutions who must custodise the investments are generally unwilling to permit such investments being included in their portfolios”.

A less stringent investment is permitted under the Tier 1 (Entrepreneur) visa, as you are able to engage in a wide range of business sectors, apart from property.

Involvement

The Tier 1 (Investor) visa “is largely passive” as only an investment is required by way of UK government bonds, share capital or loan capital in active and trading UK registered companies. An investment in companies mainly engaged in property investment, property management or property development. A period of at least 5 years investment is required for you to make an application for Indefinite Leave to Remain in the UK.

A greater deal of involvement is required under the Tier 1 (Entrepreneur) visa. You must “set up, join or take over a UK based business as a director or self-employed person and be actively involved in the running of the business”. You must have started, joined or taken over within a period of 6 months. Additionally, you must satisfy the ‘Genuine Entrepreneur Test’ by providing sufficient evidence demonstrating your genuine intention to establish, join or take over a UK based business within 6 months. “The Home Office can request that you attend an interview during which they will attempt to ascertain whether your intentions are genuine”.

Flexibility

Despite the Tier 1 (Investor) visa consisting of limitations on investment, on the opposite side this visa generally provides more flexibility than the Tier 1 (Entrepreneur) visa once you have moved to the UK.

English language requirement:

Crucially, the Tier 1 (Investor) visa initially does not entail an English language requirement unless you wish to apply for Indefinite Leave to Remain in which you will have to prove your knowledge of the English language. The Tier 1 (Entrepreneur) visa strictly requires you to have knowledge of the English language unless you are a national in a majority English speaking country, such as, but not limited to, Australia, Canada, Jamaica, New Zealand and the USA.

Indefinite Leave to Remain

Typically, the aim for many applicants will be to apply for Indefinite Leave to Remain and become a permanent resident in the UK. Under both the Tier 1 (Investor) visa and the Tier 1 (Entrepreneur) visa, you must not spend more than 180 days per year outside of the UK during the qualifying period. (Under the Tier 1 (Investor) visa the qualifying period is 5 years, but if you make an investment of £5 million this will reduce the qualifying period to 3 years, and an investment of £10 million will reduce the qualifying period to 2 years. Under the Tier 1 (Entrepreneur) visa you are eligible to apply for settlement after 5 years having invested the required amount and creating at least two new full-time jobs for UK settled individuals. If you have created at least ten new full-time jobs for UK settled individuals or generated an income of £5 million, the qualifying period will be reduced to 3 years).

The Tier 1 (Investor) visa permits your funds to be held jointly with your spouse or partner, which subsequently means, “either can become the main applicant”. Therefore, “this allows the dependant applicant spouse to spend as much time as needed outside the UK”. This is ideal where frequent travel abroad is required regarding your investment. In comparison, the Tier 1 (Entrepreneur) visa only permits one spouse or partner being the applicant for the visa, and therefore restricted to only 180 days per year of travel outside the UK.

Business opportunities

A report commissioned for the Migration Advisory Committee established that individuals who regarded themselves as both an investor and entrepreneur decided to apply for the Tier 1 (investor) visa because, alongside having the necessary finances, they also “wanted time to identify business opportunities and to become more established”. They felt that the Tier 1 (Entrepreneur) visa route was “overly prescriptive”17 in its requirements for a business to be established within 6 months and to have staff recruited within 2 years. This may suggest that the Tier 1 (Investor) visa route allows more time for you to research and discover opportunities and invest wisely.

Third parties

Both visas permit third parties to assist with your investment funds. The Tier 1 (investor) visa only permits your spouse and partner to make the investment fund available for you. The Tier 1 (Entrepreneur) visa effectively permits anyone to be a third party if your investment fund is £200,000, but if your investment fund is £50,000, your third party is restricted to either a registered venture capital firm registered with the Financial Conduct Authority, seed funding competition or from a government department.

The application process

A considerable amount of documentation is required under the Tier 1 (Entrepreneur) visa. It is a mandatory requirement that a comprehensive business plan must be included as part of your application. In addition to the business plan, your personal circumstances, such as your education, professional experiences, immigration activity and previous activity in the UK, the creditability of your business plan and your evidence of the source of your investment funds, will be looked at. The aim of the application process is “to source the genuine entrepreneurs who can demonstrate they have sound business acumen, extensive background experience and a viable business proposition”. The application process can be viewed as being burdensome and decisions are highly subjective, but with thorough preparation, it is possible to submit an application which will stand up to the rigorous scrutiny of the Home Office.

In comparison to the application process of the Tier 1 (Investor) visa, you will go through a much simpler process. The very least that is required is your current passport or other valid travel identification and evidence showing that you have the required investment funds.

Restrictions on employment

Under the Tier 1 (Investor) visa route you are free to be employed in any capacity apart from a doctor or dentist in training, unless you have a primary degree at bachelors level or above in medicine or dentistry from a UK institution that holds a Tier 4 sponsor licence or is a UK recognised or listed body, you worked as a doctor or dentist in training the last time you were in the UK, or neither of those conditions were part of the terms and conditions on a previous visa. Additionally, you are restricted from working as a professional sportsperson or sport’s coach.

The Tier 1 (Entrepreneur) visa only permits you to be employed within your business.

Refusal rate

A majority of Tier 1 Entrepreneur visa applications are rejected by the UK Visas and Immigration Authority, with a rejection rate of 70%

Article by Priyanka Kumar

I have completed my Undergraduate Law degree at the University of Hertfordshire and have recently completed my LPC LLM in Professional Legal Practice at the University of Law, Bloomsbury. I am currently working as a Data Protection Paralegal in which I exclusively deal with Subject Access Requests. During my Undergraduate Law degree I had volunteered at my local Law Centre, where I gained experience in assisting and dealing with client enquiries. I then worked for a Legal 500 firm called Kingsley Napley LLP within the Regulatory and Professional Discipline Practice Area. I gained further client experience whilst completing pro-bono work experience at the University of Law. Throughout my education I have been nominated as a School Prefect and School Representative numerous times, and have achieved various certificates from my local Borough Council for my swimming ability, along side having my poem published in a book.