If you run a newly formed UK business and are planning to apply for a sponsor licence, or if your company has a close connection to the person you want to sponsor, the Home Office guidance update of 20 May 2026 is important.
The update introduced a clearer definition of what it means to be “operating or trading” for sponsorship purposes. It also added examples of arrangements the Home Office is unlikely to accept, including businesses with little evidence of genuine trade and businesses that appear to be trading mainly with related entities. A new refusal ground also now applies where the Home Office has reasonable grounds to consider or suspect that a business has been established, or exists, mainly to facilitate a person’s entry or residence in the UK.
This does not mean owner-director sponsorship or self-sponsorship skilled worker structures are automatically banned. It does mean that new, small and owner-managed businesses need stronger evidence than ever.
What the May 2026 guidance update changed
The sponsor guidance, formally titled “Workers and Temporary Workers: Guidance for Sponsors”, was updated on 20 May 2026.
The update made two practical changes that matter for employers.
First, it clarified the evidence expected where a business says it is operating or trading in the UK. The Home Office can refuse a licence application if there is no operating or trading presence in the UK, and it can revoke a licence if that becomes apparent after the licence has been granted.
Second, it added a specific basis for refusing a licence where there are reasonable grounds to consider or suspect that the organisation has been created mainly to help someone enter or stay in the UK to work.
There was also a clarification around right-to-work checks. Sponsors must carry out right-to-work checks on sponsored workers, whether or not they are employees, and on all unsponsored employees. Employers should ensure their HR processes reflect the current guidance rather than relying on older wording.
The new meaning of “operating or trading”
The guidance now explains that “trading” broadly means commercial activity where goods or services are provided to customers for reward. “Operating” also covers charities and not-for-profit organisations providing services to clients, customers or service users.
Pre-trading businesses are not automatically excluded. A start-up that has not yet generated revenue may still qualify if it is genuinely preparing to trade and can show a credible plan to begin commercial activity in the foreseeable future.
The difficulty is evidence. A company registered recently, with no clients, no contracts, no real bank activity and no commercial explanation for the sponsored role, is likely to face serious scrutiny.
The two examples that matter most
The first example is no significant trade activity. If a business has no evidence of financial transactions with customers, clients or service users, and most of its funding comes from related companies or private investors rather than trade, the Home Office is unlikely to be satisfied that it is actively trading for sponsorship purposes.
Payments to HMRC, utilities, rent, insurance or other routine bills do not prove trading activity. They show the company has costs, not that it has a real commercial presence.
The second example is trading with related entities, also described as circular trading. This applies where invoices and contracts are mainly between businesses under common ownership or control, or between businesses that share the same people in management. If there is little or no evidence of services being provided to genuine independent customers, the Home Office may treat the arrangement as an artificial attempt to create the appearance of trading.
If your business only invoices related companies, or depends mainly on funds from connected entities, you should address that risk before applying.
The self-sponsorship risk
The May 2026 update includes a specific example aimed at self-sponsorship abuse.
The example describes a foreign national with no UK permission registering a company at Companies House while overseas, employing a UK-based worker, appointing that worker as a Level 1 User, and using the company to assign a Certificate of Sponsorship to themselves. The Home Office says it is likely to consider that the company would not otherwise exist but for the person’s wish to enter the UK.
That is a serious warning. It does not mean self-sponsorship is impossible. It means the company must be commercially genuine in its own right.
A legitimate owner-managed business with real customers, revenue, contracts, staff, commercial need and a credible UK growth plan is different from a shell company created mainly as a visa vehicle. The distinction sits in the evidence.
Why this matters beyond self-sponsorship
The guidance affects more than self-sponsorship cases. Any new or smaller business applying for a sponsor licence should expect closer scrutiny of its trading activity.
A stronger application should show a coherent commercial story. Useful evidence may include:
- Bank statements showing payments from independent customers
- Contracts with arm’s-length clients
- Invoices for genuine goods or services
- VAT registration records where relevant
- Employer’s liability insurance
- Payroll records
- A real business address or operational presence
- A credible business plan
- Evidence that the sponsored role fits the business model and scale
A thin Appendix A evidence pack that technically includes required documents but does not show genuine activity is now riskier.
The wider enforcement context matters too. Home Office data and sector reporting show sponsor licence revocations increased sharply in 2025, with more than 3,000 revocations across the year and over 1,500 in the final quarter. The Home Office increasingly uses HMRC, PAYE, Companies House and other data to identify compliance concerns before or without a physical visit.
The eligible role test
The guidance now uses a defined “eligible role” concept. A role must exist, or be reasonably expected to exist, when the Certificate of Sponsorship is assigned. The worker must perform the duties, responsibilities and hours stated on the CoS, and the role must be appropriate for the business model, business plan and scale.
For new businesses, vague job descriptions are a risk. The role must make commercial sense.
A company with little trading history and limited revenue may struggle to justify a highly paid senior role unless there is clear evidence of why the role is needed and how the salary will be funded. Our guide on SOC codes and job descriptions explains how the occupation classification system works and what the Home Office expects to see.
What happens if your licence is refused or revoked
A sponsor licence refusal usually brings a 6-month cooling-off period before a fresh application can be made, unless an exception applies.
Revocation is more serious. A business that has had a licence revoked will usually face at least 12 months before a fresh application can succeed. This can rise to 24 months where there has been more than 1 revocation involving the same key personnel.
During a suspension, the sponsor cannot assign new Certificates of Sponsorship. Existing sponsored workers are not usually curtailed immediately during suspension, but applications linked to the licence may be put on hold. If the licence is revoked, sponsored workers will usually have their permission curtailed to 60 days, or to the time remaining on their visa if less than 60 days.
If you are already facing enforcement action, our page on sponsor licence suspension and revocation explains the process. Our article on sponsor licence reinstatement after suspension explains what a successful recovery can involve.
Practical steps for new and existing sponsors
If you are applying for a licence for the first time, build a clear evidence pack before submitting. Your documents should show what the business does, who its customers are, how money enters the business, and why the sponsored role is genuinely needed.
If you are an owner-director or considering self-sponsorship, you need to show that the company exists for real commercial reasons independent of the immigration objective. The sponsored role must have genuine duties and a salary the business can credibly fund.
If you already hold a licence, audit your current position against the new operating or trading standard. This is especially important if your business model has changed, if trade has reduced, or if most income now comes from related entities.
For all sponsors, make sure right-to-work checks, HR records and reporting processes reflect the current guidance. The sponsor licence compliance visits blog explains what UKVI inspectors look for, and our guide to key personnel on a sponsor licence covers a common weak point for smaller businesses.
For overseas businesses looking to establish a UK presence, the UK expansion worker visa route remains a separate option, with its own requirements around UK footprint and active trading.
FAQs
Does the May 2026 guidance mean self-sponsorship is no longer possible?
No. The Home Office has not banned owner-director sponsorship. It has introduced a stronger refusal ground where there are reasonable grounds to suspect a company exists mainly to facilitate someone’s immigration. A genuine business with real trading activity, independent clients and a genuine role is in a different position from a shell company created mainly for a visa application.
My company only started trading 6 months ago. Can I still apply for a sponsor licence?
Possibly. New businesses can apply, and pre-trading businesses are not automatically excluded. However, the evidence must show genuine activity or a credible and realistic route to commercial trading. The newer and thinner the business, the more important the evidence becomes.
What counts as evidence of genuine trading activity?
Strong evidence includes bank statements showing third-party customer payments, contracts with independent clients, invoices for genuine services or goods, VAT registration where relevant, employer’s liability insurance, payroll, premises evidence and a credible business plan. Transactions mainly between connected companies are weaker.
What is circular trading?
Circular trading means activity that appears to create revenue but is mainly between companies under common ownership or control. The Home Office may treat this as an artificial attempt to create the appearance of trading for the purpose of getting a licence.
Can we appoint the sponsored person as an Authorising Officer or Level 1 User?
This depends on the route and the person’s status. For most sponsor licence applications, key personnel must be based in the UK, and the primary Level 1 User must meet the eligibility rules. The UK Expansion Worker route has specific exceptions. If the sponsored person is overseas and the business is applying under the Skilled Worker route, the structure needs careful advice before submission.
What happens to existing sponsored workers if the licence is revoked?
Their permission will usually be curtailed to 60 days, or to the time remaining on their visa if less than 60 days. They must find a new sponsor, make another valid immigration application, or leave the UK before their permission expires.
We currently only invoice related group companies. Is that a problem?
It can be a significant risk. The May 2026 guidance specifically identifies trading mainly with related entities as a scenario where the Home Office may not be satisfied that genuine operating or trading activity exists. You should take advice before applying or assigning further sponsorship.
Get the Right Advice Before You Apply
The May 2026 guidance update is not a minor housekeeping change. It reflects a sharper Home Office approach to sponsor licence applications from newer, smaller and owner-managed businesses. The bar has risen, and the consequences of getting it wrong can be serious.
The team at Garth Coates Solicitors includes experienced immigration solicitors who advise businesses of all sizes on sponsor licence applications, compliance and enforcement response. Whether you are applying for a licence for the first time, reviewing your current position, or dealing with a concern already raised by UKVI, we can help you understand your options and take the right steps.
Our sponsor licence application page explains how we support employers through the process, and our sponsor licence compliance service is available for businesses that need to get ongoing obligations in order.
Contact us today to arrange a consultation.
