Could Tier 2 visa changes have a disastrous effect on your start-up?

Most non-EU migrants in the UK on a Tier 2 visa now have to earn at least £35,000 to remain in the country, Startups examines the likely impact

Do you employ migrants from outside the EU? Does your start-up rely on foreign talent?

Well listen up because recent changes to Tier 2 visa restrictions could have an impact on your business and the way you hire staff.

On Wednesday April 6 2016, the government introduced a new ruling for Tier 2 visa changes which means most non-EU migrants in the UK on a Tier 2 visa now have to earn a minimum £35,000 salary in order to qualify for settlement in the country. Anyone from outside the EU who has come to the UK on a Tier 2 visa since April 2011 now faces deportation.

Announced by Theresa May earlier this year, this new ruling has stirred up a lot of debate with critics arguing it’s going to “hurt” UK start-ups who rely on foreign talent and will make it far more difficult to recruit skilled workers from outside the EU. There is also criticism that it will have an impact on the number of non-UK entrepreneurs looking to set up a company in the UK.

So what do the changes mean in practice and how might the restrictions affect your business? We asked industry experts and entrepreneurs with a focus on immigration to share their insights and explain the potential impact, if any, to start-ups and the UK economy as a whole…

What are the changes to the Tier 2 visa scheme?

Kelly Hendricks of Philip Gamble and Partnership explains that the changes to the Tier 2 income requirement should be seen as a way to identify those skilled jobs which need to be filled through sponsored workers from abroad, as it’s not possible to employ someone locally.

Tier 2 visas are given to non-EU workers which are sponsored by a company. Those who stay five years (six under the new rules) must either meet the minimum requirements for indefinite leave to remain (ILR) or must leave the UK for at least 12 months before reapplying for entry. The updated ILR requirements now include the £35,000 minimum salary requirement, minimum residence, and company sponsor.

Hendricks explains that the scheme is designed to do two things, namely:

  • Employ overseas workers only where it is clear the role cannot be filled by an individual in the local resident labour market; and
  • To allow only those skilled workers who are employed at a level deemed to be above training level to be afforded the opportunity to gain settlement in the UK after completing five years residence here.

Not all jobs undertaken under the Tier 2 scheme are affected by the changes, as Hendricks highlights: “There is also a shortage occupations list and some jobs are exempt from meeting this requirement.” Jobs that aren’t impacted by the changes (which don’t have to meet the £35,000 threshold) include certain roles in programming and engineering, social work, electronics and medicine.

Hendricks asserts that, as the £35,000 income threshold was first announced in April 2011, both employees and employers who entered the scheme over the past five years should have been aware of the requirements for settlement when obtaining their visas in the first instance.

So, should you be worried about the Tier 2 visa requirement changes?

In Hendricks’ view,  given the Tier 2 visa scheme enabled the applicant to remain in the UK for a five to six year period from 2011, businesses have had sufficient time to use the resource to train someone up locally “to create an opportunity for a local worker to fill the role at the end of the sponsored worker’s time here”.

Hendricks says that in her opinion she cannot see that businesses should be affected in the short-term. However her view isn’t necessarily shared by others in the space.

Chetal Patel, associate of Immigration at Bates Wells Braithwaite, believes the new salary requirement is going to “undoubtedly cause difficulty for start-ups and small businesses in the UK”.

“Where they are unable to meet the increased salary threshold requirement,” she continues, “UK businesses that have relied heavily on skilled foreign workers in the past will most likely have to terminate the employment contracts of those Tier 2 sponsored employees. This could potentially leave businesses with little choice than to hire from a pool of settled workers who may not have the necessary specialist skills and/or experience that the start-up requires, therefore impacting on future prospects of the business.”

Patel also thinks that the new rules could potentially deter the “best and brightest foreign entrepreneurs from setting up in the UK when they could start-up in another country which is not subject to the same rules”.

She even goes so far as to say that “the UK would not only become an unattractive place for new start-ups which may require specialist expertise from Tier 2 sponsored employees to launch, but may also see existing profitable/tax paying small businesses relocate elsewhere.”

Patel’s concerns over foreign talent are also shared by Lord Karan Bilimoria, founder of Cobra Beer…

“The changes may have widespread effects on skilled industries”

An advocate of immigration to the UK, Lord Bilimoria says the new Tier 2 visa threshold will have the biggest impact on the curry restaurant industry which, in his opinion, is “braced for a major blow”. Why? Bilimoria explains:

“Curry restaurants across the UK are short-staffed and, in many cases, forced to close for business. Many of our high streets are losing businesses that have stood for decades because it is not possible to pay staff the wages that meet the minimum salary bracket for the Tier 2 visas. Increasing the difficulty of bringing over skilled South Asian chefs to the UK will hamper the government’s revenues. In the long run, demand for South Asian cuisine will fall, leading to increased restaurant closures and job cuts, and the government’s tax receipts will drop accordingly.”

And in Bilimoria’s view, Britain’s curry restaurants aren’t the only thing set to suffer from the salary requirement increase:

“If it can happen in an established British industry like the curry restaurant industry, which adds around £4bn in value to the UK economy, it may have widespread effects throughout other, larger skilled industries. Manufacturing, engineering, technology and business services businesses in the UK all struggle with access to talent and regularly slate their talent shortages as one of the greatest barriers to growth.”

What’s more, Bilimoria echoes Patel’s fears about the UK losing its start-up appeal: “The UK’s reputation as a start-up destination and a great place to try new ideas and build a team may not stand up on these kinds of policies.”

Weighing up the odds

The three experts we have consulted with have varying opinions on the impact, and extent, that the recent Tier 2 visa changes will have on start-ups and small business owners.

What is clear from all three arguments is that if you employ non-EU nationals on a wage lower than £35,000 – for a job that isn’t included on the government-approved shortage occupation list – then you are likely to be affected. You will either have to look at increasing your sponsor’s salary or you will have to hire someone from within the EU to replace them.

Those businesses that can’t afford to maintain their Tier 2 visa sponsors under the new threshold are likely to lose out but, in the words of Owen Jones, partner at Doyle Clayton: “For some businesses the desire to bring in the best talent, no matter their nationality, will remain of utmost importance and outweigh cost considerations.”

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