Specified Limited Company Guidance [Sole Directors, Owners and Employees]

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Introduction

If you are considering including employment or dividend income to meet the financial requirement, then you need to understand the difference between specified limited companies and non-specified limited companies.

This is one of the most commonly overlooked mistakes that results in refusals for the following visas:

“Why is this important to know?”

Not knowing the difference can result in refusal because:

  • Completely different supporting documentation are required;
  • The income that you can use towards the financial requirement is calculated completely differently; and
  • Completely different Immigration Rules apply.

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This article will therefore talk about:

What is a specified limited company?

Is my employing company a specified limited company?

How do I calculate specified limited company income?

Can I combine specified limited company income with other income sources?

part 1

What is a specified limited company?

The definition of a specified limited company is found in paragraph 9(a) of Appendix FM-SE of the Immigration Rules:

specified limited company

This is not easy to understand at first, I know.

We will therefore break this down into 5 steps that you can follow to help you find out if:

  • the income is from a specified limited company (which is included under Category F or G); or
  • the income is from a non-specified limited company (which is included under Category A or B).

part 2

Is my employing company a specified limited company? 

In order to figure out whether the relevant person (e.g. the applicant or sponsor) is employed by a specified limited company or not, follow these steps:

STEP 1 – Is the person a director or employee?

If the person is not a ‘director’ or ‘employee’ of a limited company, then the employing company is not a specified limited company.

I’d strongly suggest reading our spouse visa UK financial requirements in 2020 article which discusses the different sources of income that can be used to meet the financial requirement in detail.

If the person is (or may be) a ‘director‘ or ‘employee‘ of a limited company, then go to step 2.


STEP 2 – Is the person self-employed?

It is also important to note the distinction between being ‘self-employed’ and being ‘employed’ under the Immigration Rules.

You therefore need to make sure that the person is technically not self-employed under the Immigration Rules, as this will again require different documentation.

If the relevant person is not a director or employee because they are self-employed, then you are encouraged to read our spouse visa UK financial requirements in 2020 article which discusses including self-employment income under Category F and Category G.

“Am I self-employed or employed?”

To answer this question, you should consider the following:

#1 The Immigration Rules’ definition of ‘self-employment’

The most important consideration is the definition found in the Immigration Rules, which lists self-employed persons to only be:

  • Those who are sole traders.
  • Those in a partnership.
  • Those in a franchise.

self-employment definition

#2 The HMRC’s definition of self-employment and employment

According to the HMRC, the following are indications that the relevant person will be self-employed:

  • They run their business for themselves: they can decide what work they do and when, where or how to do it, or even hire someone else to do the work;
  • They take responsibility for the success or failure of the business: they can make a loss or a profit and are responsible for fixing any unsatisfactory work in their own time
  • They are not paid through PAYE: they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
  • They do not have the employment rights and responsibilities of employees:
  • They can work for more than one client if they choose

It’s also important to recognise that you can be both employed and self-employed at the same time, for example you can work for an employer during the day and run your own business in the evenings.

You can also check your employment status with the HMRC either online or by phone.

#3 Other considerations

  • Employed persons generally receive pay slips. Self-employed persons generally submit invoices in return for their services.
  • If you are going to include income under Category A or Category B, you must provide a letter from your employer confirming your employment status.
If the relevant person is director of a limited company or an employee of a limited company, go to Step 3.


STEP 3 – Is the company a UK registered company?

Specified limited companies are only UK limited companies that are registered in the UK.

specified limited company registered in uk only

If the limited company is not registered in UK, but rather is a limited company that is incorporated in a country outside of the UK, then the employing company is not a specified limited company.

In such a case, this income will generally be included under Category A or Category B.

For more information on  Category A and Category B, I’d strongly suggest reading our article which discusses the spouse visa UK financial requirements in 2020.

If the company is registered in the UK, proceed to Step 4.


STEP 4 – Are shares held?

If shares of the company that provides the relevant person with an income are NOT held by the applicant, sponsor or family members of the applicant and/or sponsor (either directly or indirectly – more information on this below), then the company will not be a specified limited company and will therefore be included under Category A or B.

This article discusses how this employment income can be included under Category A or Category B.

“Who exactly are included as family members?”

The following are family members for the purposes of a specified limited company definition:

  • Parents;
  • Grandparents;
  • Children;
  • Stepchildren;
  • Grandchildren;
  • Brothers;
  • Sisters;
  • Uncles;
  • Aunts;
  • Nephews;
  • Nieces; or
  • First cousin.

“What does it mean to directly hold the shares?”

It is obvious when someone directly holds shares in the employing limited company.

This will be seen in the limited company’s documentation, which is readily available on the Companies House website.

companies house website

“What does it mean to indirectly hold the shares?”

It is less obvious when someone indirectly holds shares in the employing limited company.

The word ‘indirectly’ is used here by the Home Office to prevent partners circumventing the rules regarding specified limited companies.

If someone holds shares of the employing limited company indirectly, it means that they benefit from the shares of the employing limited company despite not holding the shares in practice.

Despite it being unlikely for the Home Office decision maker to find out that shares are held indirectly, it is important that you declare any shares which are held indirectly.

If you do not, and this information is revealed by another means, the Home Office decision maker will likely consider that you intentionally failed to disclose facts material to your application.

This can have disastrous consequences for your current and any future UK visa applications because under the ‘suitability requirements‘, there is a provision to refuse an application where the decision maker considers that you have intentionally, or unintentionally, employed deception.

Example of shares being held indirectly

Harriet is the founder and incorporated Super Stores Ltd in 2018.

After seeing the extensive documentation required for directors/employees of specified limited companies, Harriet decided to give all of the shares to her friend, Sarah.

Sarah therefore receives all of the company profits and in return Sarah sends the company profits back to Harriet.

Since Harriet in fact receives the company profits (from Sarah), Harriet in the above example would therefore indirectly hold shares in the employing limited company.

Therefore, the employing limited company is a specified limited company and this income should be included under Category F or G as opposed to Category A or B.

If shares of the company that provides the relevant person with an income are held by the applicant, sponsor or family members of the applicant and/or sponsor, then go to step 5.

If shares are not held, either directly or indirectly, then check out this guide which discusses Category A and Category B employment income from non-specified limited companies in detail.


STEP 5 – Are there fewer than five other remaining shareholders?

“What does ‘remaining shareholders’ mean?”

Let us illustrate what “remaining shareholders” mean using the example below:

Headphone Shop LTD shares are held by 3 persons:

  • Jeffrey (the sponsor);
  • James (non-relative); and
  • Jack (non-relative).

In the above example, the remaining shares are held by two persons because we are not including Jeffrey, who is the sponsor.

If the remaining shares (these are shares which are not held by he applicant, sponsor or family members of the applicant or sponsor) are held by more than four other persons, then the company is NOT a specified limited company.

This income will be included under Category A or Category B (more information about these can be found here).

If the remaining shares are held by fewer than five other persons, then the company that provides the relevant person with an income (either employment income and/or dividends) is a specified limited company.

This income will be included under Category F or Category G.

Part 3 of this article will now discuss how income is calculated under Category F and Category G.

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part 3

How do I calculate the amount of income that can be included from a specified limited company under Category F?

Follow the following steps in order to calculate the amount of income that you can include from a specified limited company.

Step 1 – Identify relevant financial period.

There are two main things that you need to know regarding the relevant financial period for specified limited company income under Category F.

i) The financial period is the specified limited company’s tax year, NOT the person’s personal tax year of April 6- April 5.

The company’s tax year will be seen in the CT600 company tax document.

If you are unsure what the company’s tax year is, the best person to ask is the company accountant.


ii) The financial period will be the MOST RECENT full financial year

The Immigration Rules are different to UK tax rules.

UK tax rules do not require the company’s tax accounts to be submitted straight after a company’s financial year has ended.

Instead, companies have a year or so to file their accounts.

However, the Immigration Rules require the accounts to be prepared and filed for the most recent full financial year that has passed.

Unfortunately, this means that partners who are relying on income from a specified limited company may have to file their company taxes earlier than they normally would.

Example

Lewis holds all of the shares of the company that is being included towards the financial requirement.

Lewis’ company’s tax year is 2 July1 July.

If Lewis wants to submit his partner visa application on 1 January 2020, then the relevant financial year will be 2 July 2018 – 1 July 2019.

If Lewis wants to submit his partner visa application on 5 July 2020, then the relevant financial year will be 2 July 2019 – 1 July 2020.


Step 2 – Total the gross employment income and/or dividend income received in the relevant financial time period

Example

To continue the example from Step 1, if Lewis wants to submit his partner visa application on 1 January 2020, then the income that can be included towards the financial requirement will be the gross employment income and/or dividend income Lewis received from the specified limited company during the period of 2 July 2018-1 July 2019.

If Lewis wants to submit his partner visa application on 5 July 2020, then the income that can be included towards the financial requirement will be the gross employment income and/or dividend income Lewis received from the specified limited company during the period of 2 July 2019-1 July 2020.


Step 3 – Note the ‘on-going income’ requirement for specified limited companies

You must be able to evidence on-going employment and/or dividend income from the specified limited company in order for that income to be included.

Example 

Barry is the sole owner of Fancy Pencils LTD.

Fancy Pencils LTD’s most recent full financial year is 3 June 2018 – 2 June 2019.

Between the periods of 3 June 2018 and 2 June 2019, Barry earned more than £50,000 in salary and dividends (gr0ss).

However, on 7th June 2019, Barry got bored of selling fancy pencils and dissolved Fancy Pencils LTD.

Barry submitted his online partner visa application on 10th October 2019.

However, the income from Fancy Pencils is not a source of income on date of application.

Therefore, he will not be able to include the £50,000 he earned in salary and dividends at Fancy Pencils LTD towards the financial requirement.

part 4

Can I combine specified limited company income with other income sources?

We will now discuss:

  • What sources of income can be combined with specified limited company income; and
  • What sources of income cannot be combined.

employment income
Combining specified limited company income (under Category F) with non-specified employment income (under Category A)

Combining income from Category F and Category A is permitted.

To calculate the amount of non-specified limited company employment income (Category A income) that can be combined with specified limited company income (Category F income), you must total the gross employment income received from the non-specified limited company in the specified limited company’s last full financial year.

On-going income requirement

In order to combine specified limited company income with non specified limited company income, the non-specified limited company income must also still be a source of income on date of application – that is the date when the online application is submitted and paid for.

other sources
Combining specified limited company income (under Category F) with with non-employment income (under Category C)

To remind you, the following are non-employment income sources under Category C:

  • Dividend income or other income from investments, stocks and shares, bonds or trust funds (only if this is not from a ‘specified limited company’).
  • Property rental income
  • Maintenance payments from a former partner of the applicant in relation to the applicant or any children of the applicant and their former partner. Also, maintenance payments from a former partner of the applicant’s partner in relation to that partner.
  • A maintenance grant or stipend (not a loan) associated with undergraduate study or postgraduate study or research.
  • Interest from savings.
  • Ongoing payments from a structured legal settlement.
  • Ongoing royalty payments.
  • Ongoing insurance payments.
  • UK Maternity Allowance, Bereavement Allowance, Bereavement Payment and Widowed Parent’s Allowance.
  • Payments under the War Pensions Scheme, the Armed Forces Compensation Scheme and the Armed Forces Attributable Benefits Scheme.
  • Category C income can be combined with specified limited company income under Category F/G. 

However, in order to calculate the amount of non-employment income, you must total the Category C non-employment income received in the specified limited company’s most recent full financial year.

On-going income requirement

This non-employment income must still be a source of income when the online application is submitted and paid for in order to be permissible under the Immigration Rules.

cash savings
Combining specified limited company income (under Category F) with cash savings (under Category D)

These two categories cannot be combined, unfortunately.

cash savings cannot be combined specified limited company


Combining specific limited company income (under Category F) with pension income (under Category E) 

Pension income and income from a specified limited company can be combined in order to meet the financial requirement.

However, in order to combine these categories, you will only be able to include the gross amount of pension income that was received in the specified limited company’s last full financial year.

This differs if you are only including pension income. In this case, the amount that you would be able to include towards the financial requirement from pension income will be the amount that is being received at the date of application.

On-going income requirement

The pension income must still be a source of income on date of application in order to be included towards the financial requirement.

self employment incomeCombining specified limited company income with self-employment income

Combining specified limited company income with self-employment income is something that is usually not possible.

The reason for this is that if a person has different financial years, the Home Office state that ‘this would not be a fair or accurate way of calculating a person’s annual income‘.

Interesting case study

Despite the general rule that self-employment income cannot be combined with specified limited company income, we recently encountered a case where self-employment income and specified limited company income was able to be combined in order to meet the financial requirement.

Here are the basic facts.

Client A had two streams of income.

One stream of income was from a specified limited company (a UK limited company where Client A was the only shareholder).

This income did not meet the financial requirement alone.

The second stream of income was freelancing work as a photographer.

This income also did not meet the financial requirement alone.

However, IF the above two streams could be combined, the financial requirement would be met. 

The starting position is 9.3.4 of Appendix FM 1.7 which states that “If a person has different financial years, e.g. because they are both self-employed and a director or other employee (or both) of a specified limited company, their income from the self-assessment tax return and Company Tax Return financial years cannot be combined to meet the financial requirement”.

p9 cannot be combined with self-employment income

Client A was absolutely desperate to get the visa granted as soon as possible and was willing to risk a refusal by changing his specified limited company’s financial year to April 6 – April 5 – which is the same financial period for those who are UK self-employed sole traders.

Client A’s out of country UK spouse visa application was granted – and the Home Office caseworker’s reasoning must have been that both the specified limited company income and the self-employment income had the same financial year.


Reasons why this should not work

1) We have contacted several UK accountants and they asserted that the ‘financial year‘ of a specified limited company is always distinct (i.e. different) from the financial year of a person or other company.

This is because a UK limited company is considered a separate legal entity.

2) UK tax law determines the financial year of limited companies differently to sole traders.


But… it worked. Is this something that we would recommend trying?

This is not something that we would generally recommend, as we think that it really is 50/50 whether the application will be refused or granted.

In such a case, it really depends on the interpretation of the Home Office caseworker – something that will be somewhat impossible to predict.


SUMMARY

The specified limited company definition is something vital to understand.

This is primarily because the required supporting evidence is much more extensive given that documentation will relate to both personal earnings and as well as the specified limited company’s business accounts.

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