Will the New UK Start-Up Visa Attract Higher Quality Entrepreneurs than the Old Tier 1 Visa Schemes?

Back in June 2018, the UK Home Secretary, Sajid Javid, announced his plans for a new “start-up” visa for entrepreneurs that would replace the existing Tier 1 (Graduate Entrepreneur) visa scheme in Spring 2019.  This was followed by another less dramatic but no less impactful announcement just a couple of weeks before Christmas (6th December 2018) when the Home Office released the most recent Statement of Changes in Immigration Rules (Written Statement – HCWS1159).  This document announced that the Tier 1 (Entrepreneur) visa route was to close in Spring 2019, replaced by a new Innovator Visa route.  The business immigration industry in the UK was awash with speculation for months following these announcements but there was no official clarification as to how these new visa routes would work until now.

On Thursday (7th March 2019), the government announced full details of both the new start-up and innovator visa schemes, which will take effect from 29 March 2019.  Both these new visa schemes are significantly different from the visa schemes they replace and so require careful scrutiny before any assessment can be made as to whether these new visa routes are an improvement or not for entrepreneurs.  The Tier 1 (Entrepreneur) visa and Tier 1 (Graduate Entrepreneur) schemes are notoriously difficult to navigate, boasting one of the highest refusal rates in the world compared to other similar visa schemes for entrepreneurs in other countries.  Industry observers and potential applicants alike are hoping these new visas will be easier to secure and will offer a reasonable prospect for those looking to follow this route to achieve indefinite leave to remain in the UK. 

We will publish another article in the next couple of weeks about the innovator visa and its merits relative to the Tier 1 (Entrepreneur) visa scheme which it is replacing.  This article today will examine the merits of the new start-up visa. 

UK Start-Up Visa

When it was announced in June 2018, the Start-Up Visa was greeted with significant enthusiasm.  However, now we have seen many of the details of the new visa route, we are able to better see if this enthusiasm was actually warranted.

The idea behind the new UK start-up visa seems to be to encourage more foreign entrepreneurs to come to the UK and contribute to the British economy.  It is aimed at Non-EEA national entrepreneurs seeking to establish a business in the UK for the first time and will have no cap on the number of applicants.  Unlike similar visa schemes which have existed previously, such as the Tier 1 (Graduate Entrepreneur) visa, it is open to non-graduates and there is no minimum capital requirement.  So far so good for potential applicants. 

Also, like the Tier 1 (Graduate Entrepreneur) visa, the Start-Up Visa does not lead directly to settlement in the UK.  It is granted for an initial 2 years, after which point applicants that have demonstrated sufficient progress with their business and that meet the criteria for the Innovator visa must switch to that route.  

EDIT MAY 2019 - The Home Office has now issued new guidance for the endorsing bodies which contains a useful chart that details the pathway from Start-Up Visa to settlement in the UK through the Innovator Visa.  We have included this below for your convenience.

In many respects then, this new start-up visa seems more accessible than the schemes that it will replace.  However, the major complicating factor for potential start-up visa applicants is that they must have a business idea that has been assessed by a Home Office approved Start-Up Visa endorsing body as being innovative, viable and scalable.  These criteria have been imposed as part of the new start-up visa scheme in an attract higher quality entrepreneurs and projects to the UK than those that the old visa schemes delivered in practice 

Migration Advisory Committee (MAC) Report on Tier 1 

When announcing the new visa scheme and the end of the Tier 1 (Entrepreneur) and Tier 1 (Graduate Entrepreneur) visa routes, the old visa schemes were described as having “a long tail of low-quality projects which contribute little or nothing to the wider UK economy”.   This statement was based upon the detailed investigation carried out by the Migration Advisory Committee (MAC) on the Tier 1 Entrepreneur and Graduate Entrepreneur routes.  A detailed report of their findings and recommendations was published in September 2015 and their recommendations shaped the development of new start-up and innovator visa routes. 

The MAC report showed that a large proportion of businesses created through the entrepreneur route appeared to be relatively low skilled and with limited potential to grow.  The Home Office provided MAC with an immigration intelligence assessment which suggested that the route is dominated by low-skilled businesses in the retail, wholesale and catering industries.  Meanwhile, those applications that had shown promise were often not implemented as outlined in the business plan that supported their visa application. 

In a random sample of 200 extension cases examined, 70 percent described entirely different businesses to those which had been proposed at the initial application stage.  It is not unusual for early-stage businesses to "pivot", evolving in the search for the best possible product/market fit into something different than was initially envisaged.  However, the scale of the changes identified are not suggestive of high-quality entrepreneurship.  The Home Office findings indicated that in 38 percent of cases the Tier 1 (Entrepreneur) migrants had established a business in a different sector compared to their original business proposal, and 44 percent of cases appeared to involve migrants taking over existing businesses, after initially claiming they were going to start a business of their own. 

The recommendations of the MAC report have been largely incorporated into the new Start-Up visa route, perhaps most importantly in adopting their recommendation to use what they call "endorsing bodies" as a key component in both the visa application process and the ongoing monitoring and support of the entrepreneur's start-up activities.     

Role of Endorsing Bodies 

Endorsing Bodies is an umbrella term for organisations and higher-education institutions which have expertise in identifying, investing and developing businesses in their respective sectors.  They include incubators, accelerators, business development organisations, universities and government agencies.  The list of endorsing bodies is expected to evolve as this visa route matures, with bodies withdrawing and new bodies becoming authorised.  An up to date list can be found here, along with more details about each endorsing body.  

In theory, it is good news that business ideas are now being evaluated and assessed by parties with entrepreneurial experience, commercial insight, and technical knowledge rather than an Entry Clearance Officer who is ill-prepared to make a sound judgment about the viability or otherwise of a particular enterprise.  However, the changes throw up a series of challenges for entrepreneurs looking to make the move into the UK market.  Chief amongst these challenges is the aforementioned criteria for the endorsement that entrepreneurs be working on business ideas that are innovative, viable and scalable. 

Whilst each individual endorsing body will no doubt interpret these criteria slightly differently, we have outlined below what we believe they are looking for in each of these three areas.

Innovative - Prospective applicants will need to develop a business plan that brings something new to the UK market rather than offering a "me-too" business which just competes without significant differentiation other similar businesses.  Depending on the endorsing body, it is possible that a more cost-efficient model or one with a superior but similar product or enhanced customer service may not be deemed sufficiently innovative to meet the criteria for innovation.  Franchises will, almost by definition, not be sufficiently innovative to obtain an endorsement. Franchising was popular under the Tier 1 (Entrepreneur) visa scheme as it was perceived to mitigate some of the risks of starting a new business but endorsing bodies will be looking for ideas that can be franchised rather than franchise copies of an existing idea.   

Viable - The endorsing body will be looking to support business plans that the entrepreneur and their team can actually deliver and that have a clear and credible pathway to profitability.  We will also demonstrate that you and your team have the skills, knowledge, experience and market awareness to deliver on your business plan or develop a clear plan whereby they can be developed.    

Scalable - Scaling a business is an often misunderstood concept.  It does not simply mean that the business is capable of getting bigger. That would be true of almost every business.  A business can only truly be said to be scalable if it has operating leverage.  If additional revenue requires relatively smaller and smaller additions to operating costs, you have operational leverage and your business can accurately be said to scale. However, a business that adds revenue and operating costs at an equal rate or even adds costs at a greater rate than it can add revenue cannot be properly said to scale, even if the business could get a lot larger in terms of both their revenues and gross profitability.

Many of the businesses that were beloved by Tier 1 (Entrepreneur) visa holders which were criticised by the MAC report as being low-skilled and having only a small economic impact, such as restaurants or convenience stores, are effectively being ruled out by these new criteria.  The new visa will demand a better quality business plan than was required by Tier 1 (Entrepreneur) or Tier 1 (Graduate Entrepreneur) applicants. 

The role of the endorsing body does not stop with them issuing an endorsement letter for the business owner to use in their visa application.  The guidance from the Home Office to endorsing bodies also ensures that they play a much more active role in supervising the activities of the visa holder than was previously the case under the old visa scheme.  Endorsing bodies are instructed to:

• Stay in contact with the business founders they endorse. Endorsing bodies are free to choose to do this as closely as they like but, as a minimum, they are asked (in the case of Start-Up Visa holders) to make contact at checkpoints after 6 and 12 months.  This is to check that the business founder is still making progress with their business ideas.
• Endorsing bodies must then decide, at these checkpoints, whether they are satisfied that applicants are continuing to work on their business ventures.  Start-up visa holders must demonstrate reasonable progress with their original ideas or, if they are no longer pursuing their original business ideas, they must be pursuing new business ideas that are equally innovative, viable and scalable.
• Endorsing bodies are required to withdraw endorsement if, at these checkpoints, a start-up visa holder has not demonstrated sufficient commitment to their business.  This includes withdrawing an endorsement if the start-up visa holder misses a checkpoint without prior authorisation.  

In other words, entrepreneurs will not be left alone after their initial application is approved to do whatever they want to do, such as starting a less risky business with lower growth potential than the one described in your application as so many Tier 1 (Entrepreneur) applicants have done.

It's hard to say at this early stage if this new route is an improvement on the old visa schemes or not.  A lot will depend on the way in which the endorsing bodies carry out their important role.  What is clear at this early stage, though, is that the new start-up visa is not clearly understood by potential applicants, immigration advisers or the first group of endorsing bodies.  There is a sense of uncertainty, caution, and hesitance among many in giving definitive answers to questions as everyone tentatively figures out their new processes in the wake of this big change and take their place in the new UK business immigration landscape.

If you are confused by the new start-up visa scheme or are finding coming up with an innovative, viable and scalable business idea more difficult than you had anticipated, we will be happy to work with you and navigate toegther the brave new world of UK business immigration. 

• We will help you to identify which, if any, of the endorsing bodies would be most suitable for your business idea and will make the necessary introductions so that you can get started with them on qualifying for a visa endorsement.
• We can also help you put together the business plan that will be the focus of your application to work with an endorsing body and your subsequent Innovator visa application. 

Please reach out today for a free, no-obligation initial consultation and take the first steps on your entrepreneurial journey.