Tier 1 Entrepreneur – were the funds invested correctly?

The Tier 1 Entrepreneur route is now closed to new applicants but those already in the system will still be able to apply for extension or settlement, so it will be with us for a few years to come.

And, not for the first time, a genuine and well-meaning entrepreneur has fallen foul of the rules and requirements, as recently recorded by the Court of Appeal in a surprising case called “Sajjad”.

Mr Sajjad, a Pakistani national, ran a restaurant business as a Tier 1 Entrepreneur. He applied for an extension visa but the application was refused because the evidential requirements were deemed by the Home Office not to have been met. More specifically, he had spent large sums on his business (around half a million pounds), some of it used to repay debt to creditors, but the Home Office maintained that the expenditure had not been made in a prescribed manner.

Those who apply for Tier 1 Entrepreneur extension visas must show that they have invested all the relevant amount of investment funds (typically £200,000) into the business, and this bare financial requirement had of course been easily satisfied in Mr Sajjad’s case, who thus maintained that he should have been granted the visa.

He had fought his way through Administrative Review with the Home Office, Judicial Review with the Upper Immigration Tribunal and finally Judicial Review before the Court of Appeal, which decided to entertain his application – which indicates that they thought that his case was at least arguable.

But things became rather confusing during the course of the hearing at the Court of Appeal. The Home Office lawyer was of the firm opinion that there are only two ways in which a Tier 1 Entrepreneur can invest funds into their business: (1) by way of share capital and (2) by way of director’s loan. This somewhat overturned conventional understanding, which is that investment can also be made in a third manner, ie by way of direct investment into the business. The Home Office immigration rules and policy guidance seem to support this notion.

But an unexpected narrative developed, which seems to be to the effect that an investment of funds by a director into the business necessarily constitutes a director’s loan, whether it is called a director’s loan or not. And therefore such an investment has to follow the rules for director’s loans, one of which is that it must be evidenced by a director’s loan agreement. Mr Sajjad had not provided such an agreement and thus his case failed.

But the decision was rather nebulous and it is difficult to say what it really establishes. Is it correct to say that the court held that only methods (1) and (2) of investment are acceptable methods of investment for Tier 1 Entrepreneurs? Certainly the court appeared to be sympathetic towards this idea but it did not say so in specific terms.

Mr Sajjad’s lawyer advanced the idea that the investment could have constituted a “gift” within the legal meaning, but the court declined to make a finding on this point, seemingly because they were sure that it was a director’s loan and they therefore did not need to consider it.

Mr Sajjad’s case had been rather complicated by the fact that a letter from his accountant stated that the investment did indeed constitute a director’s loan. Perhaps if the evidence had been different the court’s approach would have been different and perhaps the decision would have been different.

So where does this leave us? We note that some lawyers are already advising their Tier 1 Entrepreneurs to make their investments by way of share capital or director’s loan and nothing else. This may be wise, at the moment at any rate, but the situation is certainly confusing because the published material from the Home Office does not support such a notion.

We hope that we may get some clarification from the Home Office or the courts about this, and we will keep our readers informed.