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Holding a sponsor licence can affect all aspects of running a business. If you are considering buying a business with an existing sponsor licence it’s important that you are aware of how this will affect the process and the steps you need to take.

This article summarises the key points and issues you need to consider when buying a business with a sponsor licence and the consequences of failing to do so. If you are considering buying a business with a sponsor licence it is important to also get specific legal advice tailored to your proposed purchase at an early stage.

What is a sponsor licence?

A sponsor licence is a licence issued by the Home Office which confirms that the business is eligible to sponsor workers to come to work in the UK under a skilled worker visa.

Since Brexit, an employer has needed a sponsor licence to employ anyone who is not a UK national and who does not already have an ongoing right to work in the UK, for example due to holding pre-settled or settled status, a graduate visa, indefinite leave to remain in the UK or a family visa.

Once obtained, the sponsor licence is managed via an online Sponsorship Management System known as the SMS system. This allows the sponsor to apply for and manage certificates of sponsorship to sponsor skilled workers and notify the Home Office of any changes in the skilled workers circumstances.

Only certain roles are eligible for sponsorship. The Home Office maintains a list of job roles which can be sponsored and the requirements for those roles, which include a minimum salary that must be paid and the tasks that may fall within the role. The list of eligible roles is limited and regularly changes as the Home Office frequently adjusts the skilled worker visa route to control migration within the UK.

What are sponsor licence holders’ obligations?

Sponsors are seen as the first line of immigration defence by the Home Office and therefore the Home Office places onerous duties on sponsors to ensure their standards are being met, including record keeping and reporting requirements. The Home Office can take enforcement action against a sponsor licence holder if they fail to comply with these requirements.

As part of the application process to become a sponsor licence holder, the Home Office requires details of the company’s owners (shareholders), directors and board members to be provided to ensure that they are satisfied that the company’s owners will comply with and maintain their obligations as a sponsor.

When you buy a business that holds a sponsor licence the transfer of the licence is therefore not automatic even if it is only the identity of the shareholders that change. The company is required to notify the Home Office of the change and, in most circumstances, will need to re-apply for its sponsor licence following the change of ownership in order to continue to sponsor employees.

What additional steps do buyers need to undertake during the purchase process?

There are several steps we’d recommend you take before buying a business with a sponsor licence. These include:

1. Obtain information regarding the sponsor licence during the due diligence process : This should normally include requesting information about the sponsor licence itself, who the key personnel are, any sanctions given to the business by the Home Office, any inspections the business has had, and any correspondence with the Home Office.
2. Obtain information regarding the sponsored workers during the due diligence process : This should normally include requesting information about each sponsored worker, including their personnel file details, their visa history and current visa dates and any previous reports made to the Home Office in relation to their employment.
3. Identify the key personnel who manage the sponsor licence : This should include whether they will be retained following completion as their co-operation will be needed to manage the notification and re-application process. If they will not be remaining in the business, a process will need to be undertaken to appoint alternative key individuals.
4. Ascertain whether the business has complied with its sponsor licence obligations in the past : This should also include whether key personnel have been adequately trained to continue with their compliance obligations competently moving forward. If issues relating to the sponsor licence are identified, warranties and indemnities may need to be negotiated to address these. As a purchaser you will also need to ensure that you understand and can comply with your obligations going forward.
5. Consider whether the sponsor licence is key for the success of the business : For example, if a significant proportion of the workforce is sponsored, or key employees are sponsored, this will create increased risk for the business if an issue with the licence re-application process is identified. If the sponsor licence has been applied for but not yet used, a decision will need to be made as to whether the licence will be required in the future and should therefore be maintained.

What additional steps do buyers need to undertake following completion?

There are also specific steps you need to take immediately after you have bought the business so the business can continue to employ any sponsored workers.

The steps vary depending on the way that you have structured your purchase and the resulting change of ownership of the business and therefore we have set out the different requirements under separate headings below.

Share Purchase

If your purchase was a share purchase and the controlling interest in the business is changing, then even though the business itself will still look the same, the Home Office treats the identity of the employer as changing too.

Therefore, essentially the company has to relinquish its sponsor licence obtained under the old ownership and step down, notifying the Home Office of the change of control via the SMS system within 20 working days of the purchase. The company then has to re-apply for its own sponsor licence under the new ownership, again within 20 working days of the purchase and ask to transfer the sponsored workers from the old licence to the new one.

When considering this new application, the Home Office will assess whether they are satisfied that the new beneficial owners are able to meet the duties of the sponsor now they own the business.

There are specific documents which need to be submitted to prove the change of ownership and to support the application for the new sponsor licence. These documents can take some time to collate and therefore it is important that you take action to complete these steps as soon as possible following completion.

On the successful grant of the new sponsor licence, the company will then be required to request the transfer of the sponsored workers from the old licence to the new one and for the old licence to be made dormant, other than for reporting purposes.

If your purchase was a share purchase but did not result in a change of control of the business, the steps required are more limited. In this scenario, the company has to notify the Home Office of the change of control via the sponsorship management system within 20 working days of the date of the sale to explain the share sale and provide evidence of the new shareholders. The Home Office may then request further information. However, no re-application for the sponsor licence is required.

Business purchase triggering TUPE

If there is a business purchase and the TUPE regulations are triggered, TUPE operates to automatically transfer the sponsored workers (along with all other affected employees) to the new business.

To lawfully employ the transferring sponsored workers, the purchaser (as the new employer) must either:

• Already hold a valid sponsor licence to transfer the sponsored workers to and request this transfer within 20 working days following completion of the purchase; or
• Apply for a new sponsor licence within 20 working days following completion of the purchase.

Again, the purchaser will need to provide supporting documents to support the application for the new sponsor licence. These documents can take some time to collate and therefore it is important that you take action to complete these steps as soon as possible following completion.

On successful grant of the new sponsor licence, the details of all the sponsored workers then need to be submitted via the SMS system and a request made to transfer them from the old sponsor licence to the sponsor licence held by the new employer.

Can you change sponsored workers’ roles or terms of employment as part of a purchase?

Sponsored workers are all assigned an individual Certificate of Sponsorship (CoS) which sets out their job role, location and salary. The arrangements for sponsored workers need to stay the same and reflect the details on their original CoS for their right to work in the UK to remain valid.

If, as a result of buying the business, the sponsored worker’s role is going to change, you need to consider whether the changes mean that the individual needs to apply for a new skilled worker visa. If they do, the business will need to apply for a new CoS setting out the changes to the role and why they are needed. If the new CoS is granted, the sponsored worker must then make a new personal visa application to get permission to take up the new role.

Should you be carrying out new right to work checks after the purchase?

Where you purchase a business via an asset purchase and inherit employees under TUPE, TUPE provides that the right to work checks originally carried out by the seller are deemed to have been carried out by you as the buyer. As such, if the seller carried out a compliant right to work check, you obtain the benefit of their statutory excuse against a civil penalty (i.e. fine) for employing illegal workers.

Equally, where you purchase a business via a share purchase, as the identity of the employer remains unchanged, the company continues to benefit from the right to work checks previously carried out.

However, if the seller failed to conduct the original right to work checks correctly (and therefore never obtained a statutory excuse to pass on to you), you as the buyer would be liable for a civil penalty if an employee is later found to be working illegally.

It is therefore always advisable if you acquire employees as a result of a TUPE transfer for you to carry out your own right to work checks in relation to the transferring employees. A new check by you as the buyer will not only give you a chance to right any deficiencies in the checks made by the seller but can also ensure you are aware of the correct dates on which any follow-up check should be carried out in respect of employees with time-limited permission to work in the UK.

Due to the practical problems in undertaking these checks before employment commences for workers acquired as part of a TUPE transfer, there is a grace period of 60 days from the date of the transfer during which you as a buyer can undertake the checks.

The consequences of getting it wrong

The consequences of getting the process wrong can be severe. Aside from the fines for illegally employing workers mentioned above, the Home Office deadlines are very strict and failing to make the necessary notifications within 20 working days can have three potentially serious consequences:

1. The existing sponsor licence may be revoked and/or the new sponsor licence not granted;
2. The business may find it harder to make applications in the future; and
3. The sponsored workers’ leave could be curtailed to 60 days and they would have to leave the UK.

If you are considering buying a business with a sponsor licence and would like more information on the issues to consider please contact Charlotte Farrell or Tabytha Cunningham on and they would be happy to discuss the issues further with you.

We publish blogs and social media posts to give a general overview of legal and commercial issues, relevant at the time of publication, which we hope you will find interesting. Please note that legal rules often change depending on the specific facts of a situation. The law also changes over time following changes in legislation or new court cases. We do not actively update our blogs or posts once they are published to reflect changes in the law.

As such, our blogs and posts are not intended to advise you on the law and must not be relied upon as legal advice. If you require advice on a particular issue then please contact us and we will be pleased to help.