Tier 1 Entrepreneur refusal grounds: the Top 4 rejection reasons!

Tier 1 entrepreneur refusal reasonsPerhaps, for establishing a business in the UK, many business persons at least intend to know the pros and cons of Tier 1 entrepreneur route. Therefore, this post provides a holistic perspective on Tier 1 entrepreneur refusal grounds: the Top 4 rejection reasons.

What are the Top 4 Reasons for Tier 1 Entrepreneur Refusal?

Apparently, when introduced in 2008, the entrepreneur route for migrant was essentially a points-based application. However, over the years due to the abuse of the route, the applications are not assessed and decided solely on points. And apparently, there are a lot of subjective elements such as an applicant’s personal academic background, experience, business plan, market research, nature of business and job creation so on and so forth.

Accordingly, the evaluation of all these factors leads to the subjective nature of the application so as to establish the genuineness of investment funds, business activity and job creation. Certainly, the entrepreneur route is only for establishing a genuine business in the UK. However, most of the applicants tried to seek UK settlement under the route without doing a meaningful business activity.

Checklist of Tier 1 entrepreneur refusal grounds

Perhaps, most of the applicants are quite intelligent and resourceful. And also usually belong to the upper strata of society. Therefore, most of the Tier 1 entrepreneur refusal grounds are not due to an applicant’s inability to fulfil the requirements, but due to the inability of the applicants to clearly establish genuine intentions of doing business in the UK.

A holistic viewpoint suggests that the Tier 1 entrepreneur refusal grounds fall under four broad categories:

  1. Tier 1 entrepreneur refusal grounds due to the inability of an applicant to meet the requirements:
    • Source of Funding
    • Doing Business in the UK is not the Main Purpose
    • Generic Business Plan
    • Insufficient Evidence of Employment Creation
    • Shell Companies and extension & ILR applications
  2. Tier 1 entrepreneur refusal grounds due to actual and perceived abuse of the route:
    • Impact of Tier PSW on Tier 1 entrepreneur refusals
    • Tightening of Route and increase in refusals
    • Poor quality of applications
    • Leakage from the System
  3. Tier 1 entrepreneur refusal grounds due to the subjectivity of the genuine entrepreneur test:
    • Subjective Mechanism & Increase in Tier 1 Entrepreneur refusals
    • The genuineness of Business Vs. Likelihood of Success
    • Dissuades Potential Entrepreneurs
    • Insufficient Training of the Immigration Officers
  4. Tier 1 entrepreneur refusal grounds due to unclear policy objectives:
    • Policy Bias Towards High Skill Businesses
    • Differentiation between start-ups and existing businesses

1) Tier 1 Entrepreneur refusal due to the inability of applicants

Tier 1 Entrepreneur refusal reasons due to an inability of an applicant to meet the requirements are usually unverifiability of the source of funding, doing Business in the UK is not the Main Purpose, Generic Business Plan, Insufficient Evidence of Employment creation, business registration and shell companies.

Source of funding and Tier 1 Entrepreneur refusal reasons

This is a common problem with entry clearance and extension applications. In a number of instances, especially those relating to third-party funding the applicant is not able to provide a satisfactory source of funding and upon checks by the immigration officer, it was found that the money is not available for disposable in the UK.

The main purpose of the applicant is not doing business

If an applicant is not able to satisfy the ECO during the application assessment process, then the ECO is not clear about the purpose and might question the intentions of the applicant i.e. the applicant is only using the route to settle in the UK, without actually doing business in the UK.

Accordingly, from the evidence available with the application and where applicable during the interview process, the ECO can gather together refusal reasons to justify his opinion about the intentions of an applicant. However, for building a line of argument the ECO usually questions the elements of the genuine entrepreneur test, especially the business plan submitted with the application.

Tier 1 Entrepreneur refusal reasons and generic business plan

Generic Business Plan has been the major source of Tier 1 Entrepreneur refusals as most of the applicants have not given importance to the accuracy of the elements of the business plan.

Some business plans which are fundamentally wrong in their approach i.e. instead of justifying investment in the UK, the business plan focuses on imports.

In the case of Entrepreneurial Teams, both the applicants during the interview give a different version of the business plan.

Insufficient Evidence of Employment Creation

In most of the cases, an extension is refused due to insufficient evidence of employment, maintenance or claimed investment.

Shell companies and Tier 1 Entrepreneur refusal reasons

Extensions are also refused if the Tier 1 (Entrepreneur) migrants have set up a shell company for meeting the minimum qualifying investment, without any underlying economic activity. In most of the cases, prima facie the shell business creates two jobs. However, the employees did not undertake any meaningful commercial or business activity. Apparently, the applicants created paid jobs to achieve the objective of meeting the extension and settlement criteria.

2) Abuse of the route for leave to remain applications

The Tier 1 (Entrepreneur) route is for those who wish to establish a genuine business which intends to generate jobs in the UK. However, during 2008-2012 a significant number of those applying in-country for leave in the route were those that had come to the UK for the purpose of the study and made speculative applications simply to extend their stay in the UK. Accordingly, only a few applicants engaged in any meaningful genuine entrepreneurial activity. However, a significant proportion of entrepreneurs took employment in breach of their conditions. Perhaps, in low-skill occupations.

Impact of PSW on Tier 1 Entrepreneur refusals

The Immigration Statistics indicates that during the year ending June 2015. 5,026 in-country applications from main applicants were considered, out of which 44 per cent were granted. The number of visas being granted in-country under this route increased steadily between 2008 and 2012, followed by a sudden surge in 2013, which is closely linked to the closure of Tier 1 (Post-Study Work) route. Accordingly, in 2013, the number of Tier 1 entrepreneur refusals increased substantially. Perhaps, due to the introduction of the genuine entrepreneur test. The refusal rate peaked at 67 per cent in the year ending September 2013 before falling back in 2014.

Tier 1 entrepreneur refusal grounds due to abuse: Example

For instance, an applicant initially had leave to remain on Tier 1 (Post-Study Work) visa which was due to expire in December 2013. In October 2013, the applicant set up a business. As proof of business activity, the applicant provided a contract for marketing and advertising services. However, during the assessment process, it was concluded that there was no evidence to suggest that the client had established a legitimate company, or that the two directors of this company. Furthermore, a business owner needs to inform the HMRC if a company is active within three months of starting a business. However, the applicant had not registered with HMRC. Therefore, the applicant did not comply with the HMRC regulation. And also the applicant did not do any meaningful effort to make the company active.

Tier 1 entrepreneur refusal reasons after Interview

At an interview, the applicant initially stated that they were going to run a marketing company, but later stated they were looking to run an HR consultancy business and/or recruitment agency. The candidate provided no details as to how the £50,000 would be invested, given that they were running the business from home using a computer, internet connection and printer. However, the immigration officer refused the Tier (Entrepreneur) visa as he did not deem the applicant genuine.

Tightening of the route and Tier 1 entrepreneur refusal reasons

Since 2013, the Home Office has introduced a number of measures to tighten the route against suspected abuse. In January 2013, the genuine entrepreneur test was introduced, which included the option for caseworkers to request that applicants attend an interview. Further changes saw migrants unable to switch from Tier 4 unless they had £50,000 funding from a specified source. In July 2014, the Home Office restricted the provision to switch into the category from study categories and the Tier (Post-Study Work) category, pending further investigation and consideration of other remedial measures. Consequently, the number of extension applications reduced from 5,936 in 2013 to only 1,273 in 2015 and success rate nearly doubled in 2017 to reach a level of 67.29%, which in 2013 reached its lowest ebb of 35.92% due to poor quality of extension applications.

Poor quality of applications and Tier 1 Entrepreneur refusals

Applicants switching to the entrepreneurial route from another immigration category, rather than those who applied overseas to enter as a Tier (Entrepreneur), account for the higher proportion of poor quality and potentially abusive applications at the extension stage.

Leakage from the System

Applicants granted initial leave to enter or remain under the entrepreneur route required to apply for an extension of three years. However, during 2008-2012 relatively fewer apply for an extension. The leakage indirectly contributed towards a higher refusal rate of the entry clearance applications as the assessment became more subjective due to the rigorous use of genuine entrepreneur test and finding faults in the business plan and during the interview process.

The Subjectivity of Genuine Entrepreneur Test

The Genuine Entrepreneur Test is quite subjective, therefore, during the assessment process, a number of questions regarding the genuineness of any application can arise. For instance, questions about the source of money, education, and skills set of the applicant to run a business in the UK successfully, previous experience of the UK, business and marketing research.

Accordingly, the ECO through the paper genuineness test or oral genuineness test can fail any application as ample arguments can be built for either passing or failing a genuineness test. Therefore, it is mostly a grey area and greatly depends on the quality of the documentation and the performance of an applicant during an interview.

Applicants with a good track record of working as a businessperson, with adequate education and immigration history have a fair chance to pass the Genuine Entrepreneur Test.

Subjective Mechanism & Increase in Tier 1 Entrepreneur Refusals

The genuineness test as currently practised brings a level of uncertainty to the route. And it not helpful for the applicants, immigration advisers or the businesses involved in the process.

Certainly, the genuine entrepreneur test is a subjective mechanism. And differentiate entrepreneurs who wish to set up a valid business are able to meet the entry criteria. The genuine entrepreneur test introduced in Jan 2013. And the purpose was to reduce the perceived abuse of the route. However, since then the Tier (Entrepreneur) route remains highly susceptible to being abused. The process for assessing the suitability of Tier (Entrepreneur) application is quite flawed. Therefore often fails to differentiate between genuine and non-genuine applicants.

The genuineness of Business Vs. Likelihood of Success

Perhaps, the Government cannot determine ex-ante which combinations of applicant and business plan might become commercial successes. Moreover, it is not advisable to aim to do so. Therefore, currently, immigration officers aim to assess the genuineness of the business plan rather than its likelihood of success.

Dissuades Potential Entrepreneurs

The complexity of the genuineness test prevents the Tier (Entrepreneur) route from being truly effective. The rules of the genuineness test are convoluted and unclear and certainly dissuade potential entrepreneurs. There is a distinct lack of clarity in the requirements associated with the genuineness test. Consequently, there is a need for a more structured, transparent guidance to be available to applicants.

Insufficient Training of the Immigration Officers

Perhaps, the immigration officers may get some specialist training. Apparently, insufficiently trained officers may not make the right decisions about applicants and business plans. Moreover, especially when the criteria are too subjective.

Unclear policy and Tier 1 Entrepreneur refusal reasons

Certainly, at the policy level, there is an ambiguity to clearly define an ‘entrepreneur’. Accordingly, the MAC report stated:

There is often an overlap in the definitions of entrepreneurs and the self-employed. However, using the OECD definition above, it is possible to be a self-employed business owner that does not engage in entrepreneurial activity. For example, small business owners may not be considered “entrepreneurial” if they only take on small levels of risk and do not provide new and innovative services.

Apparently, in practice, any business has a risk and return profile. Perhaps, most of the applicants usually intend to establish a similar business, which they are doing in their home country.

Tier 1 Entrepreneur refusal grounds and policy bias!

Apparently, the MAC report clearly emphasizes the differentiation of businesses on the basis of skill level. Perhaps, this indicates the mindset of the policymakers. However, the policy guidelines don’t differentiate businesses on the basis of skill. And also on the basis of economic sectors.

The table below illustrates the details of the entrepreneur businesses during 2008-15. The MAC findings indicate:

Indeed, there are some highly skilled industries which are more prevalent amongst the businesses set up by entrepreneurs than in the overall UK business population. 8 These include the professional, scientific and technical activities sector and the information and communication sector, which jointly account for approximately 36 per cent of entrepreneurs’ activity. However, there is also a substantially higher prevalence of entrepreneurs in the more generally lower skilled wholesale and retail trade, administrative and support service activities, and accommodation and food service activities sectors.

Table – Tier 1 Entrepreneur Visa Business List 2008-2015
Business SectorShare of businessesShare of employmentTurnover (£000s)
Wholesale and retail trade, repair of motor vehicle and motorcycles27%22%571,650
Professional scientific and technical activities24%9%126,870
Information and Communication12%6%54,410
Accommodation and food service activities10%14%41,060
Administrative and support service activities9%9%111,170
Other activities3%1%5,410
Real estate activities3%2%20,590
Construction2%1%19,880
Education2%2%13,410
Financial and Insurance activities2%1%7,700
Human health and social work activities2%7%14,890
Transportation and storage2%2%11,320
Arts, entertainment and recreation1%1%3,590

Differentiation between start-ups and existing businesses

Another major theme which has created ambiguity about the objectives of the route. Perhaps, the differentiation between business start-ups and existing business. However, on June 13, 2018, the Home Office announced a new “startup” route. And the details of which launched in early 2019

Apparently, the new start-up route announced during London Tech Week, widen the applicant pool of talented entrepreneurs. And also make the visa process faster and smoother for entrepreneurs coming to the UK. Moreover, in 2019 the start-up visa route has replaced the graduate entrepreneur route. And in March 2019, the UK innovator visa has replaced the entrepreneur route.

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