New Start-up and innovator categories and changes for investors from 29 March 2019

New Start-up and Innovator categories

In a move that signals the phasing-out of the Points Based System, the Start-up and Innovator categories are located in a new appendix to the Immigration Rules (HC 1919), and do not include points-scoring criteria.  It is planned that further categories for workers will be added to this appendix as the UK immigration system is reformed.

Applicants in both categories must provide a letter from an endorsing body approved for their category, which confirms their business has been assessed as innovative, viable and scalable to an international level.  The Home Office will continue to make its own genuineness assessments in relation to other aspects of the applications.

Lists of endorsing bodies will be published on the GOV.UK website and it is anticipated these will include business accelerators, seed funding competitions, government agencies and higher education providers.  It is to be hoped that the Home Office is able to adequately vet and monitor the endorsing bodies, and that they will provide the expertise required to test business ideas more rigorously and fairly than the Home Office is able to under the current entrepreneur arrangements.  Migrants’ ability to remain in the UK will depend on it since their leave will be curtailed if their endorsing body loses its status, or their endorsement is withdrawn.  It also remains to be seen how onerous the endorsement process will be in practice, since the specific requirements for it are yet to be published.

In setting the criteria for the new categories, the Home Office has stated it is keen to weed out ‘low quality projects’. However, the emphasis on innovation and scalability risks the UK missing out on benefiting from more ordinary and mundane business ideas that may nevertheless be of great value in the UK’s economy, for example by providing essential services to communities.

The Start-up category:

• is for applicants (including entrepreneurial teams) who intend to establish a business in the UK for the first time
• has no minimum investment funding requirement
• allows leave to be granted for two years only (minus any time spent in the Tier 1 (Graduate Entrepreneur) category)
• does not lead directly to indefinite leave to remain in the UK 

Since this category does not lead to settlement, it is relatively unattractive. It is likely to be used by those who have an idea that either has low start-up costs but is highly scalable, or who have third-party funding that does not meet the requirements of the Innovator category. 

The Innovator category:

• is for more experienced business people (including entrepreneurial teams)  who intend to establish a business in the UK
• has an investment funding requirement of £50,000 for each applicant entering the category directly and zero for applicants switching from the Start-up category who are able to demonstrate their business is performing adequately
• allows leave to be granted for three years, with no maximum number of extensions
• allows indefinite leave to be applied for after a minimum of three years, and requires that at least two eligibility criteria are met from a range of seven criteria relating to investment, customer base, research and development, revenue and job creation

Although it is possible for settlement as an Innovator to be granted after three years, it is very likely that at least one extension may be required in order for the migrant’s business to have scaled up to the level required to meet the eligibility criteria for it.  An extension is also likely to be required where the migrant has needed to change their business venture during the initial period of their leave.  There is also a disincentive for migrants to apply as entrepreneurial teams, as this will have the effect of doubling the investment requirement and the level of the business criteria to be met at the time of settlement.

Changes to the Tier 1 (Investor) category

The amendments to Tier 1 (Investor) are mainly aimed at excluding individuals with questionable character or conduct from eligibility, and increasing the value of the economic benefit of the investments made in the UK. Headline changes include:

• requiring the source of the investment funds to be shown where it has been held for less than two years prior to the date of the application (this is increased from 90 days), or demonstrating that funds have been held by the applicant for two years or more
• requiring UK banks to confirm they have carried out all due diligence checks and Know Your Customer enquiries prior to opening a UK bank account for the applicant
• removing UK government bonds as an acceptable investment option (transitional arrangements apply for those already in the category)
• adding pooled investments that receive funding from a UK or devolved government department or its agencies as an acceptable investment option

There are transitional arrangements for some of the changes to ensure that investors who entered the route before 29 March 2019 are not adversely affected by them.

The removal of UK government bonds as an eligible investment may discourage investors from using the route, as this low-risk and easy to manage investment is the one most commonly used under current arrangements.  Many of the changes also introduce increased documentary complexity for applicants and will therefore involve more labour-intensive application preparation, for example if funds have been held in different investments over a two-year period, or where investments need to be traced through a number of intermediary vehicles.  

If you have any queries about this announcement, please do get in touch with a member of the immigration team or your usual contact.