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Self-Employment: Sole Trader, Director and employee of a Limited Company

Maraming paraan to meet the financial requirement of Appendix FM when making an application for entry clearance or leave to remain as a partner.  This post will focus on how the financial requirement may be met by relying on income from self-employment and outline some of the relevant factors to consider. 

The Immigration Rules set out the general financial requirement of a gross annual income of at least £18,600. Where the applicant and their partner have children the income threshold is increased by £3,800 for the first child and an additional £2,400 for each additional child.  Please note that this does not apply if the child is British or is an EEA national with a right to be admitted to or reside in the UK under the Immigration (European Economic Area) Regulations 2016.

What is self-employment under the Immigration Rules?

Sole Trader

You can rely on self-employment as: a sole trader where the business is owned and controlled by one person; a partnership where the business is owned and controlled by two or more people; or a franchise using an established business model. Self-employment must be ongoing at the date of application.

Director or employee of a “specified” limited company

You can also rely upon being a Director or employee of a specified limited company in the UK.  A specified limited company is one in which shares are held (directly or indirectly) by the applicant, their partner or listed family members, and any remaining shares are held by fewer than five other people. The specified evidentiary requirements will differ depending on the form of your self-employment.

May dalawang paraan in which the financial requirement can be satisfied through self-employment income. These are known as ‘Category F’ and ‘Category G’ applications. 

Category F – Last full financial year of self-employment

For a Category F application, the self-employed person (either the applicant’s partner or the applicant themselves (if they are lawfully self-employed in the UK)) can rely upon the income from the last full financial year, at the date of application, to meet the financial requirement. 

Category G – Average of last 2 full financial years of self-employment

For a Category G application, the self-employed person (either the applicant’s partner or the applicant themselves (if they are lawfully self-employed in the UK)) can rely upon the average income received in the last two full financial years, at the date of application, to meet the requirement. 

This is the mean average of the two financial years and provides a level of flexibility if an applicant is unable to meet the requirement in Category F.  For example if in Year 1 the gross annual income was £15,000 and in Year 2 it was £22,200 or more, then an applicant could rely on Category G to show a mean average of £18,600 over the two full financial years.

How is the financial year calculated for Categories F and G?

The Immigration Rules state that the relevant financial year for those relying upon self-employment as a sole trader, as a partner or in a franchise is that covered by the self- assessment tax return, running from 6 April to 5 April the following year. This will correspond with the required Statement(s) of Account (SA300 or SA302.) 

Where the applicant is relying on their partner’s income from self-employment outside of the UK, the relevant financial year will reflect the requirements of the taxation system of that country. Further explanatory and supporting information from an overseas accountant may be required as part of an application.

The case of Hameed (Appendix FM – financial year) [2014] UKUT 00266 (IAC) confirmed that the financial year for purposes of Appendix FM is the self-assessment tax year, not the financial year selected for accounting purposes. In this case the Appellant could not show the necessary income under Category F, in the last full financial year, or Category G, by averaging the last 2 full financial years, as their business did not begin trading until the first half of the tax year had already passed. Instead they sought to rely on the mean average of the last two accounting years of their business. This alternative proposition was dismissed by Upper Tribunal Judge Macleman as clearly not meeting the requirements of the Rules.

The Immigration Rules distinguish the calculation of a financial year for those employed as a director or an employee (or both) of a specified limited company in the UK. Here the relevant financial year will be the year shown on the Company Tax return CT600, corresponding to the 12-month accounting year of the company.  

Where an applicant has multiple financial years, for example if they are both self-employed as a sole trader and a director of a specified limited company, the self-employed income cannot be combined to meet the financial requirement.

An applicant also cannot combine their self-employed income with their partner’s self-employed income if they are each based on different financial years. The current Home Office guidance states that such an approach would not be a fair or accurate way of calculating a person’s annual income. 

Can you combine self-employed income with other forms of income?

You may combine Income under Category F or Category G with income from salaried and non-salaried employment, non-employment income and pension income in order to meet the financial requirement. However, these combined sources of income must be from the same financial year(s) and they must still be a source of income at the date of application in order to be included. 

As indicated above, any income from employment as a director of a specified limited company in the UK, including dividends from the company, is counted as income under Category F or Category G.

You cannot combine current cash savings with income under Category F or Category G. The rationale being that it would not be fair or an accurate indicator of the real level of financial resources available to a couple  and runs the risk of counting funds twice, first as income through self employment and then later as cash savings.

Can you rely on self-employment income from overseas?

You may rely on self-employment income from overseas, only if it is income of your partner in respect of them returning to the UK with you as the applicant. In this scenario your partner will need to show that their self-employment is ongoing and will continue in the UK or that they have a confirmed offer of employment starting within 3 months of their entry to the UK. You will need to provide evidence to support this such as a signed employment contract or contract to provide services, details of purchase/rental of business premises, a partnership/franchise agreement.

What specified evidence do I need to provide to show self-employment?

Appendix FM-SE sets out very specific requirements as to the documentary evidence which must be provided with an application in order to rely upon income generated through self-employment.

For the sole trader, partner or franchise route you will need to provide annual self-assessment tax returns (SA300/SA302), proof of registration with HMRC as self employed, evidence of your Unique Tax Reference number, business and personal bank statements for the full period relied upon (either one or two full financial years).

Further evidence showing that your self-employment is ongoing must also be provided. You must also provide one of the following:

  • Audited accounts, if the business is required to produce these, for the financial year(s) relied upon;
  • Unaudited accounts, if the business is not required to produce  audited accounts, for the financial year(s) relied upon;
  • A certificate of VAT registration and the VAT return for the financial year(s) relied upon if turnover is in excess of £79,000 or was in excess of the threshold which applied during the last full financial year;
  • Any evidence of planning permission/local planning authority consent to operate the type/class of business at the trading address, where this is required; or
  • A franchise agreement must be provided if applicable.

For a director or employee of a specified limited company in the UK you will need to provide: 

  • a Company Tax Return (CT600) for the financial year(s) relied upon and evidence this has been filed with HMRC (i.e an electronic or written acknowledgement); 
  • evidence of registration with the Registrar of Companies at Companies House; 
  • annual audited/unaudited accounts (as required) for the financial year(s) relied upon and an accountants’ certificate of confirmation; 
  • corporate/business bank statements covering the same 12-month period(s) as the CT600(s) relied upon; and 
  • a current Appointment Report.

Further evidence will be required including one of the following documents:

  • A certificate of VAT registration and the VAT return for the financial year(s) relied upon if turnover is in excess of £79,000 or was in excess of the threshold which applied during the last full financial year;
  • Proof of ownership/lease of business premises; or
  • Original proof of registration with HMRC as an employer for the purposes of PAYE and National Insurance, proof of PAYE reference number and Accounts Office reference number.

If you receive a salary you will be required to provide payslips and a P60 (if issued) for the relevant period and personal bank statements showing receipt of salary. 

Dividend Voucher

Likewise, if you receive dividends from the company you will need to provide dividend vouchers for all dividends declared during the period of the Company Tax return CT600. 

Are there any concessions in light of the Coronavirus (COVID-19) pandemic?

The current Home Office Policy contains guidance on the handling of cases which raise the impact of the 2020/21 COVID-19 pandemic as grounds for not meeting the minimum income requirement so as to ensure that applicants are not disadvantaged as a result of circumstances beyond their control. Therefore where an applicant’s income from self-employment has been adversely affected by the COVID-19 pandemic this should be stated clearly in the application. 

The current Home Office guidance clarifies that income received via the Coronavirus Self- Employment Income Support Scheme can count as self-employment income during the period 01 March 2020 to 31 May 2021. 

The Guidance also states that ‘a temporary loss of annual income due to COVID-19 between 1 March 2020 and 31 May 2021 will generally be disregarded for self-employment income, along with the impact on employment income from the same period for future applications’ and that evidential flexibility may be applied where an applicant or sponsor experiences difficulty in providing specified evidence due to COVID-19 restrictions.

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Do you want to instruct me? 

Please send me a brief explanation of your case or send any relevant document to my email: donm@queensparksolicitors.co.uk and let me see if I can help you or not. We offer a telephone consultation for 30 minutes for £60 one hour for only £99.

We are Queen’s Park Solicitors. I am a  lawyer based in London, UK. My name is Mr.  Lindoven Magsino, BSc, MBA, GDL, LLM, Ph.D. (candidate). We are based at Suite 4, Stewart House, 56 Longbridge Road, Barking, Essex IG11 8RT, United Kingdom | Telephone: 02036437508 | Fax: 02033931725  | Email: donm@queensparksolicitors.co.uk | Regulated by the Solicitors Regulatory Authority (SRA) 566513. Visit us at http://www.queensparksolicitors.co.uk.

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