Sponsor Licence Due Diligence in Mergers & Acquisitions

Sponsor Licence Due Diligence: At a Glance

Acquiring a UK business that employs sponsored workers can expose immigration risks that are easy to miss in conventional corporate, employment or financial due diligence. A target may hold a valid sponsor licence while carrying historic reporting failures, inaccurate sponsorship records, weak compliance systems or dependencies on key personnel whose roles will change after completion.

The transaction itself may also alter the sponsorship position. A merger, acquisition or corporate restructuring can trigger Home Office reporting requirements, a new sponsor licence application or changes to the arrangements supporting sponsored workers.

Sponsor licence due diligence should therefore test the target’s current compliance position, the reliability of its sponsorship records and whether the proposed transaction will allow existing sponsored workers to continue lawfully under the intended post-completion structure.

The review may also need to extend beyond sponsored employees. Following the right to work changes effective from 1 October 2026, relevant worker, subcontracting and labour supply arrangements can create separate checking obligations and potential civil penalty exposure.

For buyers, the value of the exercise lies in identifying material problems early enough to affect transaction structure, valuation, contractual protection, completion planning and integration. Where immigration issues surface late, the consequences can include delay, remediation cost, workforce disruption and Home Office scrutiny.

This guide explains how buyers should approach sponsor licence due diligence in UK mergers and acquisitions, including licence verification, sponsored workforce review, historic compliance, right to work exposure, transaction-specific immigration requirements and contractual risk management.

 

Section A: What Is Sponsor Licence Due Diligence?

 

Sponsor licence due diligence is the review of a target business’s immigration sponsorship arrangements, compliance history and workforce risks in the context of a proposed merger, acquisition, investment or corporate restructuring.

The exercise should establish both the target’s existing regulatory position and the effect of the proposed transaction on future sponsorship. A sponsor licence is granted to a specific organisation and remains subject to ongoing Home Office requirements. Its existence alone does not confirm that the target is compliant or that the licence can continue unaffected after completion.

The review should also consider wider right to work compliance where the target engages workers through arrangements covered by the framework in force from 1 October 2026, including qualifying worker contracts, individual subcontracting arrangements and relevant labour supply relationships.

 

1. What Should Sponsor Licence Due Diligence Establish?

 

A buyer should be able to answer the following questions before relying on the target’s sponsorship arrangements:

 

1. Does the correct legal entity hold the required sponsor licence and immigration route permissions?
2. Has the target complied with its sponsor duties, including record keeping, reporting, monitoring and employment requirements?
3. Are sponsored workers employed in accordance with their Certificates of Sponsorship, immigration permission, salary requirements and sponsored occupations?
4. Has the Home Office identified previous compliance concerns, restrictions or enforcement issues?
5. Will the transaction affect the sponsor licence, legal employer or immigration position of sponsored workers?
6. What applications, notifications or other immigration actions will be required before or after completion?
7. Do the target’s worker, subcontracting or labour supply arrangements create separate right to work obligations?
8. Are right to work checks and retained records sufficient to establish the applicable statutory excuse where available?
9. What remediation, contractual protection or transaction adjustment is required in response to identified risks?

 

The answers should be supported by evidence. Management assurances and the continued existence of a sponsor licence should not be treated as proof of compliance.

Findings should distinguish between matters that have been verified, issues supported only by management representations and gaps that remain unresolved because the target has not produced sufficient evidence.

 

2. How Does Sponsor Licence Due Diligence Differ from a Compliance Audit?

 

A sponsor compliance audit examines whether an organisation is meeting its existing sponsorship obligations and identifies areas requiring corrective action.

Sponsor licence due diligence places those findings within the transaction. It considers whether compliance issues affect the buyer’s exposure, whether they can be remedied before completion and what they mean for licence continuity, workforce stability and the intended post-acquisition structure.

For example, a compliance audit may identify deficiencies in sponsored worker records. In an acquisition, the buyer also needs to know whether those deficiencies could affect a replacement licence application, require remediation before completion, justify specific warranties or indemnities or alter the commercial assessment of the target.

The scope may also extend beyond the sponsor licence where contractors, agency labour or outsourced workforce arrangements create separate right to work or civil penalty exposure.

The output should therefore support an acquisition decision: what the risk is, how material it is, whether it can be fixed, who should bear it and what action is required before and after completion.

 

 

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Section B: Why Sponsor Licence Due Diligence Matters in Mergers and Acquisitions

 

Immigration sponsorship can represent a significant operational dependency for businesses that recruit internationally. Where sponsored workers occupy specialist, technical, managerial or other business-critical roles, uncertainty over the sponsor licence or employees’ immigration status can directly affect business continuity.

The significance of these risks depends on the nature of the transaction, the target’s workforce composition, the quality of its compliance arrangements and the buyer’s proposed post-acquisition operating model.

Immigration due diligence also has a wider workforce compliance dimension. Since 1 October 2026, relevant right to work responsibilities and potential civil penalty exposure may arise under specified working and labour supply arrangements outside conventional direct employment.

For buyers, this means the investigation should consider both the target’s sponsored workforce and the wider arrangements through which labour is engaged or supplied.

 

1. Sponsor Licence Continuity Cannot Be Assumed

 

A buyer should not assume that acquiring a business automatically entitles it to use the target’s sponsor licence.

The Home Office applies specific rules to mergers, takeovers and other corporate changes. The consequences depend on the legal entities involved, whether there is a change in direct ownership, whether sponsored workers transfer between organisations and how the business will operate after the transaction.

Under C4.5, where the transaction constitutes a relevant change in direct ownership, the existing sponsor licence will be revoked or, where sponsored workers have transferred under the relevant arrangements, made dormant, even where the company continues to exist as the same legal entity.

The guidance also provides specific reporting and new licence application requirements, including 20-working-day deadlines in relevant merger, takeover and ownership change scenarios.

However, not every change in shareholding or indirect ownership necessarily produces the same result. The precise legal and corporate structure must be examined against the applicable Home Office provisions.

A share acquisition may leave the employing legal entity unchanged while still engaging the Home Office’s change of ownership requirements.

An asset acquisition involving the transfer of a business and its employees may present different sponsorship considerations.

The buyer should therefore establish the consequences of the actual transaction structure rather than relying on the general distinction between share and asset purchases.

 

2. Existing Compliance Failures May Threaten the Workforce

 

A target business may appear commercially attractive while carrying sponsorship compliance problems that have not yet resulted in Home Office action.

Potential deficiencies include:

 

• Failure to report relevant changes affecting sponsored workers or the sponsoring organisation.
• Incomplete or inaccurate employee records.
• Inconsistencies between sponsored roles and employees’ actual duties.
• Salary arrangements that do not meet the applicable immigration requirements.
• Inadequate monitoring of attendance, absences or changes in employment circumstances.
• Defective right to work checking procedures.
• Failure to maintain effective sponsorship governance or oversight.
• Inadequate verification arrangements for workers engaged through qualifying non-employee contracts.
• Weak controls over relevant subcontracting or labour supply relationships.

 

Where sponsorship deficiencies are material, the target may face licence downgrading, suspension or revocation, depending on the circumstances and the Home Office’s assessment.

A licence revocation can have serious consequences for the business and its sponsored workforce. The buyer must therefore consider not only whether problems exist, but also their severity, duration, extent and potential regulatory consequences.

Right to work breaches should be assessed separately. Although the same conduct may raise sponsor compliance concerns, civil penalty liability and the statutory excuse framework operate under their own legal requirements.

 

3. Immigration Risks Can Affect Transaction Value

 

Immigration compliance issues may have direct and indirect financial implications.

Direct costs can include specialist legal advice, remediation exercises, sponsor licence applications, immigration applications, additional recruitment expenditure and, where relevant, penalties or enforcement-related costs.

Following the 1 October 2026 reforms, buyers should also consider potential civil penalty exposure associated with qualifying worker contracts, individual subcontracting arrangements and relevant labour supply relationships.

This may be particularly significant for businesses that depend on contingent labour, subcontracted services or complex workforce supply arrangements.

The existence of a commercial contract with a labour supplier should not automatically be treated as removing the target’s potential right to work responsibilities. The statutory position depends on the relevant contractual relationships and the conditions of the expanded regime.

Indirect costs may be more substantial. They can include operational disruption, loss of key employees, delayed integration, reduced capacity to deliver contracts and management resources diverted towards regulatory issues.

The financial significance of these risks should be assessed in the context of the target’s business model.

For example, a business with a small number of sponsored employees in non-critical roles may have a different risk profile from a specialist engineering or technology company whose principal operations depend on a substantial sponsored workforce.

Similarly, a business that relies heavily on supplied labour may present material right to work exposure even where relatively few workers are sponsored directly by the target.

 

4. Historic Problems May Emerge After Completion

 

Sponsor compliance failures are not necessarily identified immediately.

A business may have operated for years without a Home Office compliance visit, despite weaknesses in its systems or historic reporting practices.

Following an acquisition, changes to management, personnel, premises or operational systems may bring these deficiencies to light. A subsequent Home Office inspection could examine records and conduct that predate completion.

However, the existence of historic non-compliance does not mean every liability automatically transfers to the buyer. The legal consequences depend on the transaction structure, the identity of the relevant employer or sponsor, the nature of the liability and the applicable legal framework.

Due diligence should distinguish between:

 

• Legal liability: obligations or claims for which the buyer or acquired entity may be legally responsible.
• Regulatory exposure: the possibility of Home Office action affecting the sponsor licence or sponsorship arrangements.
• Operational risk: disruption to the acquired business, its workforce or its ability to continue trading effectively.
• Extended right to work exposure: potential liability arising from qualifying non-employee working or labour supply arrangements under the statutory framework effective from 1 October 2026.

 

The timing of the underlying conduct also matters. The introduction of new right to work requirements on 1 October 2026 does not mean that every historic check must automatically be repeated or that earlier conduct should be assessed retrospectively against requirements that were not then in force.

The buyer should establish which rules applied when the relevant engagement or check occurred, whether any follow-up checking obligation subsequently arose and whether current working arrangements comply with the requirements now in force.

These distinctions are essential when deciding how identified problems should be addressed in the transaction documents.

 

5. Timing Can Become a Completion Risk

 

Sponsor licence matters may be time-sensitive.

Where the transaction creates a requirement for a new sponsor licence application, the buyer needs to establish the relevant Home Office deadlines, application requirements and potential processing times.

Under the Home Office’s merger and takeover provisions, certain relevant corporate changes must be reported within 20 working days, and a new sponsor licence application may also be required within the applicable 20-working-day period.

The precise triggering event, responsible organisation and required action must be established for the transaction.

An acquisition timetable that does not accommodate these requirements may create avoidable immigration and workforce risks.

The buyer should also consider whether post-completion workforce transfers, changes to contractual engagement arrangements or the introduction of new labour suppliers will create additional right to work verification requirements.

Immigration due diligence should therefore begin sufficiently early to allow the parties to identify transaction-specific obligations, determine the required actions and coordinate the immigration workstream with the wider completion process.

 

 

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Section C: What Should Sponsor Licence Due Diligence Cover?

 

The scope of sponsor licence due diligence should be proportionate to the target’s reliance on sponsored workers, its corporate structure, its compliance history and the proposed transaction.

A buyer acquiring a business with a substantial international workforce will ordinarily require a more extensive review than one acquiring a business with a single sponsored employee.

However, even a small sponsored workforce can create material risk where the individuals concerned are critical to the operation of the business.

Following the right to work changes effective from 1 October 2026, buyers should also consider the target’s wider workforce engagement model. A business with relatively few directly employed sponsored workers may nevertheless have material right to work exposure through qualifying worker contracts, subcontracting or labour supply arrangements.

The investigation should address the following principal areas.

 

1. Sponsor Licence Status and Permissions

 

The buyer should establish the target’s current sponsorship authorisation.

This includes confirming the legal entity holding the licence, the immigration routes covered, the current licence rating and any relevant restrictions or outstanding Home Office concerns.

Where available, the review should include evidence from the Sponsor Management System (SMS) and relevant Home Office correspondence.

The public register of licensed sponsors can assist with initial verification, but it does not provide a complete account of the organisation’s compliance history or internal sponsorship arrangements.

 

2. Corporate Ownership and Control

 

The buyer should establish how the target’s sponsor licence relates to its corporate structure.

Relevant enquiries include the identity of the licensed entity, direct and indirect ownership arrangements, connected entities, branches and any previous corporate transactions.

The proposed acquisition structure must then be examined to determine whether it changes the direct ownership of the sponsor, the identity of the employing entity or other matters relevant to Home Office reporting and sponsorship continuity.

Direct ownership changes require particular attention because, where C4.5 applies, the existing licence will be revoked or, where sponsored workers have transferred under the relevant arrangements, made dormant. Where the licensed company remains the employer and wishes to continue sponsoring workers, the required new sponsor licence application must be made within the applicable 20-working-day period.

Indirect ownership changes should also be reviewed, but should not automatically be treated as having identical consequences.

This assessment should be undertaken alongside the corporate legal team’s analysis of the transaction.

 

3. Sponsored Workforce

 

The buyer should obtain a reliable picture of the sponsored workforce.

This includes the number of sponsored employees, the immigration routes under which they are sponsored, their assigned Certificates of Sponsorship, relevant permission expiry dates, sponsored occupations, salaries and actual employment arrangements.

Particular attention should be paid to business-critical employees and any proposed changes to their employment following completion.

The review should identify discrepancies between sponsorship records and the employees’ actual circumstances.

Where sponsored workers will transfer between legal employers, the buyer should consider whether the transfer qualifies under the Home Office’s business transfer provisions and whether the workers continue in the same sponsored occupation code, with no material change taking the role outside the existing sponsored employment.

 

4. Sponsor Compliance Systems and Records

 

The target’s sponsorship compliance arrangements should be assessed to establish whether it has effective procedures for fulfilling its Home Office duties.

This includes examining employee records, right to work checks, monitoring systems, reporting processes, management responsibilities and internal compliance oversight.

The record keeping review should take account of the current Home Office sponsor guidance, including Appendix D, which specifies documents that sponsors must retain.

The existence of written policies is not sufficient evidence of compliance. The buyer should consider whether the policies have been implemented consistently and whether the underlying records support the target’s representations.

 

5. Right to Work Compliance and Labour Supply Arrangements

 

Right to work due diligence should extend beyond the target’s directly employed sponsored workforce where the applicable statutory framework requires it.

The changes effective from 1 October 2026 expanded the scope of relevant right to work obligations and potential civil penalty exposure to specified working arrangements outside conventional employment contracts.

The buyer should therefore establish how the target engages individuals and obtains labour, including through worker contracts, individual subcontracting arrangements, agencies and other relevant supply relationships.

The review should consider:

 

• The categories of individuals working for or supplying services to the target.
• The contractual arrangements governing those engagements.
• Which organisations have statutory right to work responsibilities under the applicable provisions.
• Whether appropriate checks have been conducted before relevant work commenced.
• Whether follow-up checks have been completed where required.
• Whether the target retains evidence sufficient to establish the applicable statutory excuse.
• Whether digital verification providers used for right to work checks satisfy the applicable registration requirements.
• Whether the target has effective controls over relevant labour supply relationships.
• Whether historic checking arrangements complied with the requirements in force at the relevant time.

 

The buyer should not assume that every contractor or commercial supply arrangement falls within the same statutory category. The application of the extended regime depends on the nature of the engagement and the relevant legal provisions.

Likewise, the reforms do not require every organisation to use digital verification for every worker. The appropriate checking method depends on the individual’s circumstances and the applicable Home Office guidance.

 

6. Home Office Correspondence and Enforcement History

 

The buyer should request details of material Home Office correspondence and previous compliance activity.

Relevant information may include compliance visits, audit findings, action plans, licence downgrading, suspension notices, revocation proceedings, warnings, illegal working investigations and unresolved enquiries.

The absence of previous enforcement action should not be treated as confirmation that the target is compliant.

Where the target has previously experienced sponsorship or right to work problems, the review should establish what happened, whether corrective action was completed and whether any residual risk remains.

 

7. Transaction-Specific Immigration Requirements

 

Due diligence should establish the immigration consequences of the intended transaction structure.

This may involve considering sponsor licence reporting duties, the potential need for a new licence, the treatment of sponsored employees transferring between businesses and the effect of proposed post-completion restructuring.

The buyer should distinguish between the Home Office’s sponsor transfer provisions and the separate right to work requirements that may apply to employment transfers, including qualifying TUPE transfers.

The current Home Office guidance should be used to establish the applicable right to work checking arrangements following a transfer, including any relevant statutory excuse provisions and checking periods.

These matters should be assessed before the parties finalise the transaction timetable and integration plan.

 

8. Contractual and Financial Protections

 

Where material risks are identified, the buyer should consider how they affect the commercial terms of the transaction.

Potential measures include specific warranties, indemnities, disclosure requirements, pre-completion remediation obligations, conditions to completion and appropriate post-completion cooperation provisions.

Following the 1 October 2026 right to work reforms, contractual protection may also need to address qualifying labour supply arrangements, verification responsibilities, access to right to work evidence and potential civil penalty exposure.

The appropriate protection will depend on the nature of the risk, the transaction structure and the parties’ negotiating positions.

Importantly, contractual protections between buyer and seller do not prevent the Home Office from exercising its regulatory powers. They allocate risk between the parties but cannot guarantee continued sponsorship authorisation or remove statutory right to work obligations.

 

 

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Section D: How Does the Transaction Structure Affect Sponsorship?

 

The immigration consequences of a merger or acquisition depend significantly on how the transaction is structured. Buyers should not assume that the target company’s sponsor licence will remain available after completion or that existing sponsorship arrangements can continue without further action.

The distinction between a share acquisition, an asset acquisition and a wider corporate restructuring is particularly important. However, the legal form of the transaction is only the starting point. The buyer must also establish whether the transaction changes the direct ownership of the licensed organisation, the identity of the sponsoring employer or the arrangements under which sponsored workers are employed.

The Home Office applies specific rules to mergers, takeovers and changes affecting sponsoring organisations. These rules can require notifications, new sponsor licence applications and action concerning sponsored employees.

The starting point for due diligence is to identify precisely which legal entity currently sponsors the workers, which entity will employ them after completion and whether the transaction changes the ownership or operation of the licensed organisation.

 

1. Share Acquisitions

 

In a share acquisition, the buyer purchases shares in the target company. The target ordinarily continues to exist as the same legal entity, although its ownership changes.

Where the target is the licensed sponsor and remains the employer of its sponsored workers, the transaction may preserve important elements of the existing employment and sponsorship structure.

However, continuity of the legal entity does not mean that the sponsor licence can automatically be treated as unaffected.

Under C4.5, where the transaction constitutes a relevant change in direct ownership, the existing sponsor licence will be revoked or, where sponsored workers have transferred under the relevant arrangements, made dormant, even where the company continues to exist and remains the employer of its sponsored workers.

The guidance provides specific reporting and new licence application requirements for relevant ownership changes, including 20-working-day deadlines in applicable circumstances.

Buyers should therefore distinguish between a change in direct ownership and a change occurring further up the corporate ownership chain. Not every indirect ownership change necessarily has the same sponsorship consequences, although it may still require consideration under the relevant reporting provisions.

Due diligence should establish:

 

• The target’s existing direct and indirect ownership structure.
• The precise shareholding and control changes proposed.
• Whether the transaction constitutes a relevant change in direct ownership under the Home Office guidance.
• Whether the existing sponsor licence will be revoked or can continue under the applicable rules.
• Whether a new sponsor licence application is required and which organisation must apply.
• The position of existing sponsored employees during any transition.
• The applicable Home Office notification and application deadlines.
• Whether the acquisition timetable accommodates the required immigration actions.

 

The buyer should also investigate whether the target has previously undergone changes of ownership that were not correctly reported or addressed.

An earlier corporate transaction may have created unresolved sponsorship issues, even where the business has continued operating under an apparently valid licence.

The analysis should be based on the actual ownership structure and transaction documents rather than assuming that a share purchase automatically preserves the existing sponsor licence.

 

2. Asset Acquisitions

 

An asset acquisition generally involves the purchase of specified business assets rather than shares in the company itself.

Depending on the transaction, the buyer may acquire a trading operation, premises, contracts, intellectual property and employees without acquiring the legal entity that currently holds the sponsor licence.

This can create a separation between the existing sponsor and the organisation that will operate the business after completion.

A sponsor licence does not transfer automatically as an asset under the sale agreement.

Where sponsored employees move to the acquiring organisation, the buyer must establish whether it has the necessary sponsorship authorisation and whether the circumstances fall within the Home Office’s provisions for business transfers.

The application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may be relevant to continuity of employment, but it does not eliminate the need to comply with immigration sponsorship requirements.

The Home Office’s sponsor guidance provides specific arrangements for sponsored workers affected by qualifying business transfers. Where the workers continue in the same sponsored occupation code, with no material change taking the role outside the existing sponsored employment, they may be able to continue their employment with the receiving organisation without making individual change-of-employment immigration applications solely because of the qualifying transfer.

However, this does not remove the receiving organisation’s obligation to hold or obtain appropriate sponsorship authorisation where required, or the need for the relevant organisations to comply with applicable reporting and application requirements. If the required valid application is not made within 20 working days, or the application is refused, the transferred workers will have their permission cancelled, except any workers who can be sponsored under an appropriate existing licence held by the incoming organisation.

For an asset acquisition, due diligence should examine:

 

• Which employees and business operations will transfer.
• Whether TUPE applies to the relevant employees.
• Whether sponsored workers will have a new legal employer.
• Whether the buyer already holds an appropriate sponsor licence.
• Whether a new sponsor licence application is required.
• Whether the transfer qualifies under the Home Office’s sponsored worker transfer provisions.
• Whether existing Certificates of Sponsorship and immigration permissions can continue under those provisions.
• What notifications and other steps must be completed.
• Whether there is any risk of interruption to lawful employment.

 

The buyer should also assess the separate right to work implications of the transfer. The Home Office provides specific right to work checking arrangements for qualifying TUPE transfers, which must be distinguished from the sponsor licence requirements.

The buyer should resolve these matters before committing to a completion timetable that depends on uninterrupted access to the target’s sponsored workforce.

 

3. Mergers and Business Combinations

 

A merger or business combination may involve two or more existing organisations being consolidated into a single corporate or operational structure.

The sponsorship consequences depend on the legal mechanics of the merger and what happens to the existing sponsoring entities.

For example, a transaction may involve one company absorbing another, the establishment of a new employing entity or the consolidation of previously separate businesses under a revised corporate structure.

The buyer should identify whether the original licensed sponsors will continue to exist, whether sponsored workers will move between employers and whether any existing licence will cease to be appropriate.

Where both organisations already hold sponsor licences, this does not necessarily remove the need for immigration analysis.

The parties must still determine which entity will sponsor each worker following the merger and whether the proposed arrangements comply with Home Office requirements.

The review should also establish whether the merger creates a change in direct ownership, a transfer of sponsored workers or another event requiring notification or a new sponsor licence application.

Where workers transfer under qualifying merger or business transfer provisions, the buyer should assess whether they continue in the same sponsored occupation code, with no material change taking the role outside the existing sponsored employment, so that they can continue without individual change-of-employment applications.

The transaction plan should identify which organisation is responsible for each required notification, application and sponsorship action.

 

4. Group Reorganisations and Post-Acquisition Integration

 

Sponsor licence issues can arise even where the immediate acquisition does not involve a transfer of sponsored employees.

A buyer may intend to integrate the acquired business after completion by transferring employees into another group company, consolidating payroll, changing reporting lines or relocating business functions.

These measures can create additional sponsorship requirements.

For example, an acquired company may initially remain the sponsor and employer of its workforce, but a subsequent integration exercise may involve transferring employees to a different legal entity.

The buyer should therefore distinguish between:

 

1. The immigration consequences of the acquisition itself.
2. The immigration consequences of the proposed post-acquisition operating model.

 

Failure to consider both stages may result in a transaction appearing manageable at completion while creating substantial immigration difficulties during integration.

Integration planning should also consider the expanded right to work framework effective from 1 October 2026, particularly where the buyer intends to consolidate contingent labour arrangements, replace contractors, change labour suppliers or introduce new subcontracting relationships.

These changes may affect which organisations have statutory checking responsibilities and what evidence must be retained to establish an applicable statutory excuse.

The buyer should therefore coordinate immigration sponsorship, right to work compliance and workforce integration planning before implementing material organisational changes.

 

5. Transaction Structure Comparison

 

The following table identifies the principal immigration due diligence questions associated with common corporate transaction structures.

 

Transaction	Principal Due Diligence Question	Potential Sponsorship Consequence
Share acquisition	Does the change in direct ownership affect the existing sponsor licence?	Reporting obligations, licence revocation and possible requirement for a new sponsor licence application.
Asset acquisition	Will sponsored workers transfer to a different legal employer?	Receiving organisation sponsorship requirements, transfer-related notifications and assessment of qualifying transfer provisions.
Merger	Which sponsoring entities and employers will continue to exist?	Changes to sponsor licences, reporting obligations and sponsored worker arrangements.
Group restructuring	Will sponsored workers move between group companies or will ownership arrangements change?	Potential sponsor licence, reporting and immigration application requirements.
Post-acquisition integration	Will the employing entity, roles, remuneration or employment arrangements change?	Further sponsorship compliance actions and potential right to work implications.
Labour supply restructuring	Will the buyer change how contractors, workers or supplied labour are engaged?	Potential changes to right to work checking responsibilities and extended civil penalty exposure under the framework effective from 1 October 2026.

 

This comparison is an initial risk-screening tool. It does not replace a transaction-specific assessment under the current Home Office guidance.

 

 

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Section E: Reviewing the Target Company’s Sponsor Licence

 

Verification of the target’s sponsor licence is a fundamental part of immigration due diligence.

The buyer needs to establish not only that a licence exists, but also whether it is held by the correct legal entity, covers the relevant immigration routes and is subject to any restrictions or unresolved regulatory concerns.

A valid licence at the date of investigation does not necessarily establish that the target has complied with its duties or that its sponsorship arrangements will remain appropriate after completion.

 

1. Confirming the Licensed Legal Entity

 

The buyer should obtain details of the organisation that holds the sponsor licence.

These should be reconciled against the target’s corporate records, employment arrangements and the entities included within the proposed transaction.

The investigation should identify any mismatch between the entity that holds the licence and the entity that employs, pays or directs the sponsored workers.

Such discrepancies may arise from historic restructurings, group arrangements, business transfers or administrative errors.

Where a corporate group contains several legal entities, the buyer should not assume that a licence held by one company authorises every group company to sponsor workers independently.

The permitted sponsorship arrangements must be established by reference to the licence and applicable Home Office rules.

The review should also establish the licensed entity’s direct ownership and determine whether the proposed acquisition will change that ownership in a manner engaging the Home Office’s merger and takeover provisions.

 

2. Licence Rating and Immigration Routes

 

The buyer should confirm the target’s licence rating and the immigration routes for which it is authorised.

A-rated and B-rated licences have different regulatory implications. A B-rating indicates that the Home Office has identified compliance concerns requiring action under an improvement process.

The buyer should investigate any previous or current B-rating, including the circumstances that led to it, the measures required and whether the Home Office considers the issues resolved.

The review should also confirm that the target holds authorisation for the routes used by its sponsored workforce.

This is particularly relevant where the business has expanded, changed its recruitment practices or inherited employees through earlier transactions.

The buyer should establish whether any restrictions affect the organisation’s ability to assign Certificates of Sponsorship or undertake intended recruitment activity.

 

3. Sponsor Management System Records

 

The Sponsor Management System is central to the administration of a sponsor licence.

Buyers should seek appropriate evidence from the target’s SMS records, subject to suitable confidentiality and access arrangements.

Relevant information may include:

 

• Current sponsor licence details and rating.
• Approved immigration routes.
• Named sponsor licence personnel.
• Certificate of Sponsorship allocations and assignments.
• Relevant sponsor and worker reporting activity.
• Home Office messages and notifications.
• Outstanding administrative matters.
• Changes previously recorded against the licence.
• Notifications relating to historic mergers, takeovers or ownership changes.

 

The buyer should consider whether SMS records are consistent with the information provided by the target’s management, HR and payroll teams.

Discrepancies may indicate weak internal controls or failures to report relevant changes.

The buyer should not assume that direct SMS access can be provided to external advisers without regard to the system’s access and user requirements. Evidence can instead be obtained through appropriately authorised personnel and controlled disclosure.

Where a previous transaction is relevant, the buyer should seek evidence of the notifications and applications made at that time, together with any Home Office response.

 

4. Key Personnel and Sponsorship Governance

 

The target’s sponsor licence governance arrangements should be examined to establish who is responsible for maintaining compliance.

The principal sponsor licence roles include the Authorising Officer, Key Contact and Level 1 User.

Due diligence should confirm that the relevant individuals are appropriately appointed, remain eligible for their roles and have sufficient knowledge and authority to discharge their responsibilities.

The buyer should also determine whether any of these individuals will leave the business or change roles following completion.

A transaction can create practical compliance difficulties where the people responsible for the sponsor licence are departing directors, senior managers or HR personnel.

The buyer should assess whether there is an effective succession and handover plan.

Particular attention should be paid to situations where:

 

• The Authorising Officer will leave on completion.
• SMS access depends on a single employee.
• Sponsorship responsibilities are poorly documented.
• The business relies on external advisers without effective internal oversight.
• There is no clear process for escalating immigration compliance issues.
• Previous personnel changes were not correctly recorded.
• Compliance responsibilities are divided between group companies without clear accountability.
• Planned integration will change the personnel responsible for sponsorship administration.

 

Sponsor licence governance should be considered as part of the wider post-acquisition integration plan.

Where the buyer intends to centralise immigration compliance across a corporate group, it should ensure that the resulting arrangements remain consistent with the responsibilities of each licensed sponsor.

 

5. Home Office Compliance History

 

The buyer should investigate the target’s history of Home Office compliance activity.

Relevant enquiries should cover previous visits, audits, warnings, licence downgrading, suspension or revocation proceedings and any other material regulatory correspondence.

Where the Home Office has identified deficiencies, the buyer should obtain the relevant correspondence and evidence of corrective action.

It is important to establish whether identified problems were isolated administrative failures or indications of wider weaknesses in the organisation’s compliance systems.

For example, a historic failure to report a change of business address may have different implications from repeated discrepancies between sponsored workers’ recorded occupations and their actual duties.

The buyer should assess the nature, seriousness and potential recurrence of each issue.

The review should also establish whether previous Home Office concerns related to right to work compliance, illegal working or the organisation’s wider workforce arrangements.

These matters may create separate legal and regulatory exposure alongside sponsor licence risks.

 

6. Historic Corporate Changes

 

Previous mergers, acquisitions, changes of ownership and restructurings should form part of the licence review.

The buyer should establish whether the target has previously experienced corporate changes that engaged the Home Office’s sponsorship requirements and whether the necessary actions were completed.

Relevant evidence may include historic notifications, correspondence, licence applications and records relating to sponsored workers transferred between businesses. For historic ownership-change requests, the buyer should also check for evidence that the required SMS submission sheet and supporting evidence were sent within the applicable 5-working-day period.

Particular attention should be given to historic changes in direct ownership, including circumstances where the target continued to operate under an existing licence without clear evidence that the C4.5 revocation or dormancy outcome and any required replacement licence application had been addressed.

The buyer should also investigate whether previous business transfers were treated under the Home Office’s qualifying sponsored worker transfer provisions and whether the relevant conditions were satisfied.

An unreported or incorrectly managed historic transaction may create a material issue for the buyer, particularly where the target’s current licence position depends on assumptions made during that earlier transaction.

 

7. Evidence and Disclosure Requirements

 

The buyer should request sufficient documentation to substantiate the target’s sponsorship position.

This may include licence details, relevant SMS records, Home Office correspondence, compliance policies, audit reports, organisational charts and records of previous corporate changes.

Where information is missing, incomplete or inconsistent, the buyer should record the limitation rather than treating an absence of evidence as confirmation of compliance.

The review should distinguish between matters that have been independently verified, matters supported by management representations and matters that remain unresolved.

This distinction will inform the buyer’s assessment of risk and the contractual protections required.

Where sponsor licence information is linked to wider right to work compliance, the buyer should also establish whether the target maintains appropriate records of checks conducted under the rules applicable at the relevant time.

Evidence obtained during due diligence should be handled in accordance with applicable confidentiality, data protection and information security requirements.

 

 

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Section F: Due Diligence on Sponsored Workers

 

A target company’s sponsored workforce may represent both a significant commercial asset and a source of immigration compliance risk.

The buyer needs to understand which employees depend on employer sponsorship, whether their current employment arrangements comply with immigration requirements and how the proposed transaction may affect their ability to continue working.

The investigation should extend beyond a simple list of employees holding sponsored visas.

It should establish whether the sponsorship arrangements accurately reflect the roles being performed, the remuneration being paid and the employment relationships in place.

Although the right to work regime was expanded from 1 October 2026 to cover additional working arrangements, sponsor licence due diligence and wider right to work due diligence should remain analytically distinct.

This section addresses workers sponsored under the immigration system. The target’s wider contingent workforce and labour supply arrangements should be examined separately under the applicable right to work requirements.

 

1. Establishing the Sponsored Workforce Population

 

The buyer should obtain a complete schedule of sponsored employees.

The schedule should identify, as relevant:

 

• Employee identifier and employing legal entity.
• Immigration route and relevant permission expiry date.
• Certificate of Sponsorship reference and assignment details.
• Sponsored occupation code and job title.
• Actual role and principal duties.
• Contractual salary and relevant working hours.
• Current work location and reporting arrangements.
• Material changes to employment since sponsorship began.
• Any pending immigration applications or unresolved sponsorship matters.
• Whether the employee is expected to transfer to another legal entity following completion.
• Whether the employee occupies a business-critical role.

 

The information should be reconciled against HR records, payroll data and relevant SMS records.

Where sponsored workers are employed across multiple entities or locations, the buyer should establish the legal and operational arrangements for each group.

Personal information should be collected and shared only where necessary, using appropriate confidentiality, access controls and data protection safeguards.

 

2. Certificates of Sponsorship

 

The buyer should examine whether Certificates of Sponsorship were assigned correctly and whether the information recorded remains consistent with employees’ actual circumstances.

A Certificate of Sponsorship contains important details concerning the sponsored employment, including the role, occupation code and remuneration.

Discrepancies between the recorded information and the employment actually undertaken may create compliance concerns.

The review should identify cases where employees have changed roles, duties, salary arrangements or working patterns without appropriate consideration of the sponsorship implications.

Not every employment change requires a new Certificate of Sponsorship or immigration application. The consequences depend on the nature of the change and the applicable rules.

The buyer should nevertheless establish whether the target has correctly assessed and managed those changes.

Where sponsored workers will transfer as part of a qualifying merger, takeover or business transfer, the buyer should establish whether the workers continue in the same sponsored occupation code, with no material change taking the role outside the existing sponsored employment, so that they can continue without individual change-of-employment applications.

The existence of these provisions does not remove the need for the relevant organisations to comply with applicable sponsor licence, reporting and transfer requirements.

 

3. Salary and Working Hours Compliance

 

Sponsored worker salary compliance can be a particularly important due diligence issue.

The applicable salary requirements depend on factors including the immigration route, occupation code, date and circumstances of sponsorship, relevant transitional provisions and the employee’s working arrangements.

The buyer should not assess every sponsored worker against a single current headline salary threshold.

Instead, the review should establish the requirements applicable to each employee and determine whether their actual remuneration satisfies those requirements.

Relevant enquiries may include:

 

• Whether contractual and actual salaries are consistent.
• Whether payroll records support the amounts declared for sponsorship.
• Whether working hours have changed.
• Whether salary reductions or unpaid absences have been correctly assessed.
• Whether allowances or other payments have been treated appropriately.
• Whether the employee benefits from a transitional or discounted salary provision.
• Whether changes in role or remuneration require further immigration action.
• Whether proposed post-acquisition changes to salary or benefits could affect sponsorship compliance.

 

Particular care is required where the target has introduced salary sacrifice arrangements, reduced working hours or changed employees’ remuneration following sponsorship.

The buyer should also consider whether proposed post-acquisition harmonisation of salaries or benefits could affect immigration compliance.

Where discrepancies are identified, the review should establish the applicable rules for the relevant period rather than assuming that current salary requirements applied throughout the employee’s sponsorship history.

 

4. Sponsored Occupations and Actual Duties

 

The buyer should establish whether sponsored workers are performing the jobs for which they were sponsored.

This requires more than checking that the employee’s job title matches the title recorded on the Certificate of Sponsorship.

The actual duties, level of responsibility and employment arrangements should be examined to determine whether they remain consistent with the relevant occupation and sponsorship requirements.

Potential concerns include employees performing substantially different duties, working in roles that no longer meet the applicable skill requirements or being deployed in arrangements that are inconsistent with the sponsorship rules.

Where the acquired business uses secondments, client-site working or complex group reporting structures, the buyer should examine whether those arrangements are compatible with the relevant sponsor obligations.

The objective is to identify substantive discrepancies rather than treating every minor variation in job description as a compliance failure.

Where the buyer intends to reorganise job functions following completion, the proposed changes should be assessed before implementation to determine whether they trigger reporting or immigration application requirements.

 

5. Right to Work Compliance

 

Sponsor licence due diligence should include a review of the target’s right to work checking arrangements.

Holding a sponsor licence does not remove the employer’s separate obligations under the UK’s illegal working prevention regime.

The buyer should assess whether the target has carried out appropriate checks, retained the required evidence and completed follow-up checks where necessary.

The review should also establish whether any employees are working outside the conditions of their immigration permission.

Potential issues include missing check records, incorrectly conducted checks, failures to carry out necessary follow-up checks and discrepancies between immigration permissions and actual employment arrangements.

Following the reforms effective from 1 October 2026, the buyer should distinguish between right to work checks relating to directly employed sponsored workers and the wider obligations that may apply to qualifying worker contracts, individual subcontracting arrangements and relevant labour supply relationships.

The expanded regime does not mean that all historic checks must automatically be repeated. The buyer should assess historic checks against the requirements applicable when they were conducted and identify any subsequent checking obligations.

Where the target uses a digital verification service provider for relevant right to work checks, the buyer should establish whether the provider satisfies the applicable registration requirements and whether the target retains the prescribed evidence.

Digital verification is not compulsory for every worker. The appropriate checking method depends on the individual’s circumstances and the applicable Home Office guidance.

Where TUPE or another employment transfer mechanism applies, the buyer should separately consider the right to work checking implications of the transfer and the relevant Home Office provisions.

On a qualifying TUPE transfer, the incoming employer obtains the benefit of any statutory excuse established by the outgoing employer, but can inherit exposure where the original check was defective. The Home Office therefore advises fresh checks and allows a 60-calendar-day grace period from the transfer in which to complete them. The grace period does not extend the deadline for any subsequent follow-up check.

A deficiency in right to work records may have different legal consequences from a breach of sponsor licence duties. The two should be assessed distinctly, even where they arise from the same underlying circumstances.

 

6. Immigration Permission Expiry Dates

 

The buyer should identify sponsored employees whose immigration permission is due to expire before, during or shortly after the proposed transaction.

This is important where the acquisition involves a new sponsor licence application, changes to the employing entity or other immigration actions.

The due diligence review should establish whether relevant extension or change-of-employment applications are required and whether the proposed transaction timetable creates any avoidable difficulties.

Particular attention should be paid to employees whose continued employment is essential to the business.

The buyer should avoid relying on assumptions that immigration permission will automatically continue in every transaction scenario.

Where the Home Office’s qualifying business transfer provisions apply, the buyer should assess whether existing immigration permission can continue without an individual change-of-employment application and ensure that the associated conditions are satisfied.

 

7. Business-Critical Sponsored Employees

 

Not all sponsored employees present the same operational risk.

A target may employ a relatively small number of sponsored workers who nevertheless occupy positions that are essential to its commercial performance.

Examples include specialist engineers, senior technical personnel, healthcare professionals, research staff or employees responsible for major client relationships.

The buyer should identify employees whose loss or interruption of employment would materially affect the business.

For these individuals, immigration due diligence should consider:

 

• Their current immigration position.
• Whether the transaction affects sponsorship continuity.
• The timing of any necessary applications or notifications.
• Whether proposed changes to employment could affect immigration status.
• The availability and cost of alternative staffing arrangements.
• The consequences of delay or disruption.
• Whether the intended transfer qualifies under the Home Office’s sponsored worker transfer provisions.

 

This analysis can inform completion conditions, integration planning and the wider commercial assessment of the acquisition.

Where the business relies heavily on a small number of sponsored employees, the buyer should consider whether immigration continuity represents a material transaction dependency.

 

8. Employees with Pending Immigration Applications

 

The buyer should identify sponsored employees who have pending immigration applications, outstanding Home Office decisions or unresolved questions concerning their immigration status.

These cases may require individual assessment, particularly where the transaction changes the sponsoring employer or the terms of employment.

The review should establish whether the proposed transaction could affect the basis of a pending application and whether any further action is required.

Where uncertainty remains, the buyer should ensure that the issue is addressed before implementing changes to the employee’s sponsorship or employment arrangements.

Particular attention should be given to applications involving a proposed change of employer, extension of immigration permission or changes to the sponsored occupation.

The buyer should avoid making assumptions about the continuation of pending applications without considering the relevant immigration rules and Home Office guidance.

 

9. Proposed Post-Completion Employment Changes

 

A buyer may intend to restructure the acquired workforce, consolidate roles, change reporting arrangements or harmonise employment terms after completion.

Such changes should be examined for immigration implications before implementation.

A sponsored employee’s immigration position may be affected by changes to their employer, occupation, duties, remuneration or other relevant employment circumstances.

The buyer should therefore coordinate workforce integration planning with immigration compliance advice.

A transaction may be completed successfully from a corporate perspective while creating avoidable sponsorship problems if subsequent employment changes are implemented without considering the immigration rules.

Where the buyer intends to replace directly employed workers with contractors, move work to an outsourced provider or consolidate labour supply arrangements, the expanded right to work regime effective from 1 October 2026 should also be considered.

The legal consequences will depend on the nature of the proposed working arrangements and the statutory responsibilities of the organisations involved.

 

10. Sponsored Workforce Due Diligence Findings

 

The buyer should produce a structured record of sponsored workforce findings, identifying the relevant employee population, evidence reviewed, compliance concerns and required action.

Findings should be distinguished according to whether they concern:

 

1. Existing breaches or suspected breaches of sponsorship obligations.
2. Unverified information requiring further investigation.
3. Transaction-triggered immigration requirements.
4. Post-completion integration risks.
5. Business continuity risks affecting critical employees.
6. Right to work compliance concerns requiring separate investigation.

 

This approach helps prevent administrative issues from being treated as equivalent to potentially serious immigration breaches.

It also allows the buyer to prioritise remediation, contractual protections and completion planning according to the actual significance of the findings.

The findings should be incorporated into the wider transaction risk assessment, with clear recommendations for pre-completion action, contractual protection and post-completion compliance measures.

 

 

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Section G: Identifying Historic Sponsor Compliance Failures

 

Historic sponsor compliance failures can represent a significant risk in mergers and acquisitions, particularly where the target has relied on overseas workers for an extended period or has experienced substantial changes in its workforce, management or corporate structure.

The fact that a business currently holds a sponsor licence does not establish that it has complied with every obligation imposed by the Home Office. Some deficiencies may remain undetected until a compliance visit, investigation or subsequent review of the organisation’s records.

For buyers, the purpose of investigating historic compliance is to determine whether the target has breached its sponsorship duties, whether any resulting regulatory exposure remains and whether the problems could affect the acquired business following completion.

The investigation should consider the nature, frequency, duration and seriousness of identified deficiencies. It should also distinguish between historic breaches that have been addressed, ongoing failures requiring immediate action and potential risks that cannot be resolved without further evidence.

Right to work compliance should be examined as a related but legally distinct area. Following the changes effective from 1 October 2026, buyers should consider whether the target’s working arrangements engage the expanded right to work framework, including qualifying worker contracts, individual subcontracting arrangements and relevant labour supply relationships.

The review must also account for the timing of the underlying conduct. Earlier right to work checks should be assessed against the requirements applicable when they were undertaken, rather than automatically applying the October 2026 requirements retrospectively.

 

1. Failures to Report Relevant Changes

 

Licensed sponsors are required to report specified changes affecting sponsored workers and the sponsoring organisation within the applicable Home Office deadlines.

Reportable matters can include relevant changes to sponsored employment, circumstances affecting the sponsoring organisation and certain corporate events.

Due diligence should examine whether the target has identified reportable events and submitted the required notifications through the appropriate Home Office channels.

Potential concerns include:

 

• Changes to sponsored workers’ duties or employment arrangements that were not properly assessed or reported.
• Relevant salary or working hours changes that were not reported where required.
• Failure to report specified absences or cessation of sponsorship.
• Changes to the sponsoring organisation’s address or operating circumstances that were not notified.
• Changes to sponsor licence key personnel that were not correctly recorded.
• Previous mergers, acquisitions or ownership changes that were not reported.
• Business transfers involving sponsored workers that were not managed under the relevant Home Office provisions.
• Failure to address the consequences of a relevant change in direct ownership.

 

The buyer should not assume that every employment or corporate change is reportable. The relevant obligation depends on the circumstances and the Home Office guidance applicable to the event.

However, repeated failures to recognise reportable changes may indicate that the target lacks effective sponsorship governance.

Particular attention should be given to previous corporate transactions. Under the Home Office’s merger and takeover provisions, certain ownership changes and business transfers engage specific reporting and application requirements, including 20-working-day deadlines in relevant circumstances.

Where historic changes were not properly managed, the buyer should establish whether the target’s existing sponsorship arrangements remain consistent with the applicable requirements.

 

2. Incomplete Sponsor Records and Appendix D Compliance

 

Licensed sponsors must maintain specified records relating to their sponsored workers and sponsorship arrangements.

The Home Office’s Appendix D guidance identifies documents that sponsors are required to retain, including relevant evidence concerning sponsored employment and immigration compliance.

Due diligence should establish whether the target maintains the required records and whether those records are accurate, accessible and consistent with the information held in HR, payroll and sponsorship systems.

Potential deficiencies include:

 

• Missing or incomplete sponsored employee records.
• Inadequate evidence of relevant immigration permissions or right to work checks.
• Missing contact information or employment documentation.
• Inconsistent salary and working hours records.
• Incomplete attendance or absence monitoring records.
• Failure to retain documents required under the applicable version of Appendix D.
• Inadequate evidence supporting sponsored roles or employment arrangements.
• Records that cannot be reconciled against Certificates of Sponsorship or SMS information.

 

The buyer should assess record keeping against the requirements applicable to the relevant sponsorship arrangements and periods.

The current Appendix D guidance should also be considered when reviewing the target’s ongoing obligations, including the distinction between sponsorship record keeping and statutory right to work responsibilities.

A sponsoring organisation’s duties under the sponsor guidance are not necessarily identical to the statutory checking responsibilities of every organisation involved in employing, engaging or supplying a worker.

Where the target uses contingent labour, the buyer should separately investigate the relevant right to work verification and retention obligations arising under the framework effective from 1 October 2026.

The existence of an electronic HR system does not establish that the required records have been maintained. The buyer should test the completeness and reliability of the underlying evidence.

 

3. Salary, Occupation and Employment Compliance Failures

 

Sponsored workers must be employed in accordance with the applicable immigration requirements, including relevant salary, occupation and employment conditions.

Historic discrepancies can arise where employees’ circumstances have changed without appropriate consideration of their sponsorship position.

For example, a sponsored worker may have received a salary reduction, changed working hours or moved into a substantially different role after the original Certificate of Sponsorship was assigned.

The buyer should examine whether those changes were permitted, whether any reporting or immigration action was required and whether the target complied with the relevant requirements.

Salary compliance should be assessed against the rules applicable to the individual worker, taking account of the relevant immigration route, occupation, sponsorship history and any transitional provisions.

The buyer should avoid applying a single current salary threshold to every historic sponsorship arrangement.

Potential areas of concern include:

 

• Actual remuneration falling below the applicable immigration requirement.
• Salary reductions that were not correctly assessed.
• Working hours inconsistent with the relevant sponsorship arrangements.
• Employees performing duties materially different from those recorded for sponsorship.
• Incorrect occupation codes or inappropriate role classifications.
• Changes to employment arrangements that required but did not receive appropriate immigration consideration.
• Deployment arrangements inconsistent with the applicable sponsorship conditions.

 

The buyer should establish whether any discrepancies are isolated or form part of a wider pattern.

Where the target’s commercial model depends on working arrangements that may not satisfy sponsorship requirements, the risk may be more substantial than an individual administrative error.

 

4. Right to Work Failures and the 1 October 2026 Reforms

 

Right to work compliance is a distinct legal obligation that should form part of immigration due diligence, particularly where the target employs or engages individuals whose permission to work in the UK is subject to immigration control.

Employers must comply with the applicable right to work checking requirements to establish a statutory excuse against civil liability for illegal working where such an excuse is available.

The statutory framework was expanded with effect from 1 October 2026, extending relevant obligations and potential civil penalty exposure to specified working arrangements beyond conventional employment contracts.

These changes are particularly relevant to buyers of businesses using contingent labour, individual subcontractors, agency workers or other labour supply arrangements.

However, the existence of a contractor or labour supply relationship does not automatically establish that every party has identical statutory obligations. The application of the expanded regime depends on the contractual arrangements and the relevant statutory provisions.

Due diligence should therefore investigate both the target’s direct employment arrangements and the wider relationships through which individuals undertake work for the business.

The review should establish:

 

• Which individuals are directly employed by the target.
• Which individuals work under other qualifying contractual arrangements.
• Whether the target uses individual subcontractors, labour suppliers or relevant online matching services.
• Which organisations have right to work checking responsibilities under the applicable statutory framework.
• Whether the required checks were completed before relevant work commenced.
• Whether appropriate follow-up checks were undertaken.
• Whether the target retains evidence sufficient to establish an applicable statutory excuse.
• Whether digital verification providers used for right to work checks satisfy the applicable registration requirements.
• Whether identity verification and record retention procedures comply with the relevant Home Office guidance.
• Whether labour supply contracts and operational controls adequately address right to work responsibilities.
• Whether the target has previously received illegal working allegations, civil penalty notices or related Home Office correspondence.

 

The buyer should distinguish between checks conducted before 1 October 2026 and arrangements falling within the revised framework from that date.

Historic checks should be assessed against the requirements in force when they were undertaken, including the relevant statutory code of practice. The introduction of the revised regime does not automatically invalidate checks that were properly conducted under earlier requirements.

However, the buyer should identify whether subsequent follow-up checks were required and whether ongoing or newly established working arrangements comply with the rules now in force.

Where the target uses a digital verification service provider, the buyer should establish whether the provider is appropriately registered for right to work checks and whether the prescribed verification evidence has been retained.

The use of digital verification is not compulsory for every individual. The appropriate method depends on the worker’s circumstances and the applicable Home Office requirements.

Where a transaction involves a qualifying TUPE transfer, the buyer should also examine the specific Home Office provisions governing right to work checks following the transfer, including the applicable checking period and statutory excuse requirements.

Right to work failures can create civil penalty exposure and may also have implications for sponsor licence compliance. The two regimes should nevertheless be analysed separately because their legal requirements, available defences and regulatory consequences are not identical.

 

5. Home Office Compliance Visits and Investigations

 

The buyer should establish whether the target has previously been subject to Home Office compliance visits, investigations or other regulatory enquiries.

Relevant documents may include visit notifications, inspection findings, correspondence, action plans, responses submitted by the target and evidence of completed corrective measures.

Where the Home Office has identified concerns, the buyer should determine whether those concerns were resolved and whether similar deficiencies remain.

The absence of previous enforcement action should not be treated as confirmation of compliance.

Some businesses may not have experienced a recent Home Office visit despite operating with inadequate sponsorship systems.

Due diligence should therefore examine the underlying compliance evidence rather than relying exclusively on the target’s enforcement history.

Where a Home Office investigation remains outstanding, the buyer should assess whether the matter could affect completion, the continued availability of the sponsor licence or the commercial operation of the acquired business.

 

6. Sponsor Licence Downgrading, Suspension and Revocation

 

Historic or current sponsor licence enforcement action requires particular scrutiny.

The Home Office may downgrade, suspend or revoke a sponsor licence in accordance with the applicable guidance and the nature of the identified concerns.

These measures have different consequences and should not be treated as interchangeable.

A licence downgrading may involve an action plan and restrictions affecting sponsorship activity.

While the licence is suspended, the sponsor cannot assign any Certificates of Sponsorship.

Revocation can have substantially more serious consequences, including implications for existing sponsored workers and the organisation’s ability to sponsor employees.

Where the target has experienced any of these measures, the buyer should obtain the relevant Home Office correspondence and establish:

 

• The reasons for the action.
• The period during which the action applied.
• The target’s response.
• Whether the matter was resolved.
• Whether corrective measures were implemented.
• Whether similar compliance weaknesses remain.
• Whether any outstanding restrictions affect the proposed transaction.
• Whether the enforcement history creates additional risks for a new sponsor licence application.

 

The buyer should also consider whether a previous licence revocation or related enforcement history affects the eligibility or suitability of any organisation or individuals involved in a proposed new application.

The applicable consequences depend on the relevant Home Office requirements and the particular circumstances.

 

7. Historic Mergers, Acquisitions and Corporate Changes

 

Previous corporate transactions may create sponsorship risks that remain relevant to the current acquisition.

The target may have acquired another business, transferred sponsored employees, changed direct ownership or reorganised its group structure without fully addressing the associated immigration requirements.

The buyer should investigate whether the relevant Home Office notifications and applications were completed and whether the resulting sponsorship arrangements were lawful.

Particular attention should be paid to transactions involving changes in direct ownership, because the Home Office’s merger and takeover provisions can require the existing licence to be revoked and a new licence application to be made.

The review should also establish whether previous sponsored worker transfers qualified under the applicable Home Office provisions and whether the conditions for continued sponsorship were satisfied.

Where the target cannot produce evidence of compliance, the buyer should investigate the position rather than assuming that the absence of Home Office correspondence means the transaction was correctly managed.

Historic failures may create regulatory exposure even where the underlying corporate transaction was completed several years earlier.

 

8. Distinguishing Isolated Failures from Systemic Non-Compliance

 

Not every compliance deficiency presents the same level of risk.

An isolated administrative error that was promptly identified and corrected may have different implications from repeated failures affecting numerous sponsored workers or fundamental weaknesses in the organisation’s sponsorship systems.

The buyer should consider:

 

• The seriousness of the underlying obligation.
• The number of workers or transactions affected.
• The duration of the deficiency.
• Whether the target knew or should reasonably have known about the issue.
• Whether appropriate corrective action was taken.
• Whether similar failures have occurred repeatedly.
• Whether management has effective compliance oversight.
• Whether the issue remains ongoing.
• Whether the deficiency affects the target’s ability to maintain sponsorship authorisation.
• Whether the issue could result in civil penalty or other enforcement exposure.

 

The buyer should also distinguish between deficiencies that can be remedied prospectively and historic conduct that may continue to carry regulatory consequences.

Correcting a record keeping or reporting weakness does not necessarily remove the consequences of an earlier breach.

Similarly, introducing compliant right to work procedures after 1 October 2026 does not automatically resolve liabilities arising from earlier unlawful working arrangements.

These distinctions should inform the buyer’s risk assessment, contractual protections and decisions concerning pre-completion remediation.

 

 

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Section H: Assessing and Categorising Immigration Risks

 

Once the due diligence investigation has identified potential sponsorship and right to work issues, the buyer must assess their significance for the proposed transaction.

A useful due diligence report should not simply list deficiencies. It should explain the legal and regulatory implications of each finding, the likelihood and potential consequences of enforcement action, the effect on the business and the measures available to manage the risk.

Immigration risks should be assessed within the context of the target’s business model, sponsored workforce, contingent labour arrangements and proposed post-acquisition structure.

The same compliance issue may have different commercial consequences for different buyers.

For example, a potential sponsorship problem affecting a small number of non-critical employees may be manageable through targeted remediation, while a comparable issue affecting employees essential to the business’s principal operations could represent a material transaction risk.

 

1. Principal Categories of Immigration Risk

 

For acquisition purposes, immigration risks can be divided into four principal categories.

Regulatory risk concerns the possibility of Home Office action affecting the sponsor licence, sponsorship arrangements or compliance status of the relevant organisation.

Legal and financial risk concerns potential statutory liability, civil penalties, contractual claims, remediation expenditure and other financial consequences arising from immigration or right to work issues.

Workforce and operational risk concerns the possibility that sponsored employees or other essential workers may be unable to continue working under the intended arrangements, resulting in disruption to business operations.

Transaction risk concerns the effect of immigration requirements on the acquisition structure, completion timetable, purchase price, contractual protections or proposed post-completion integration.

These categories can overlap.

For example, a material sponsorship breach may create regulatory exposure, threaten the continued employment of business-critical workers and require the buyer to renegotiate transaction protections.

Similarly, a defective right to work verification process affecting a substantial contingent workforce may create potential civil penalty exposure, operational disruption and uncertainty over the target’s contractual labour supply arrangements.

The buyer should identify the relevant categories for each material finding rather than treating all immigration risks as equivalent.

 

2. Sponsor Licence Due Diligence Risk Matrix

 

A structured risk matrix can help buyers prioritise findings and determine which matters require immediate attention.

The following classifications are illustrative buyer-side due diligence categories. They are not formal Home Office risk ratings or statutory classifications.

 

Risk Level	Illustrative Finding	Potential Transaction Consequence	Indicative Response
Critical	Existing sponsor licence revocation, serious unresolved enforcement action or inability to establish lawful sponsorship arrangements for business-critical workers.	Potential inability to operate the acquired business as intended, serious workforce disruption or fundamental completion risk.	Immediate specialist review, assessment of transaction viability, consideration of completion conditions and possible restructuring of the transaction.
High	Material salary or occupation compliance concerns, significant unreported corporate changes, serious deficiencies affecting multiple sponsored workers or substantial right to work exposure under qualifying labour supply arrangements.	Material regulatory, financial or operational exposure requiring action before completion or specific contractual protection.	Detailed investigation, prioritised remediation, specialist legal advice and tailored contractual safeguards.
Medium	Incomplete records, inconsistent reporting practices, weaknesses in sponsorship governance or deficiencies in verification procedures where the potential consequences appear limited and remediation is practicable.	Additional compliance expenditure, management intervention and potential post-completion integration difficulties.	Documented remediation plan, allocation of responsibilities and appropriate contractual protection where necessary.
Low	Isolated administrative deficiencies with limited apparent regulatory significance and reliable evidence of effective corrective action.	Limited expected effect on the transaction, subject to confirmation of the relevant facts.	Routine corrective action, monitoring and incorporation into post-completion compliance improvements.

 

The appropriate classification depends on the circumstances. A finding should not automatically be treated as low risk merely because the Home Office has not previously taken enforcement action.

Similarly, an issue that appears administrative may warrant a higher classification if it affects numerous workers, reflects systemic non-compliance or undermines the reliability of the target’s sponsorship records.

 

3. Likelihood and Consequence

 

Risk assessment should consider both the likelihood of an adverse outcome and the seriousness of its potential consequences.

The buyer should examine whether the issue represents a confirmed breach, a suspected breach or an unresolved matter requiring further evidence.

It should also consider the potential regulatory response, the financial implications and the operational consequences for the acquired business.

However, the absence of a current Home Office investigation does not establish that enforcement risk is negligible.

Some issues may remain undetected until a later compliance visit or review.

The buyer should therefore assess the underlying compliance position rather than attempting to predict Home Office enforcement solely from the target’s previous inspection history.

Where right to work issues are involved, the analysis should distinguish between the applicable statutory obligations, the availability of a statutory excuse and the circumstances in which civil penalty liability may arise.

The expanded regime effective from 1 October 2026 should be applied only to the relevant working arrangements and periods, taking account of any applicable transitional provisions.

 

4. Workforce Dependency and Business Continuity

 

The commercial significance of immigration risk depends partly on how heavily the acquired business relies on affected workers.

Where sponsored employees occupy essential operational, technical or managerial positions, uncertainty over their immigration position may create a material business continuity concern.

The buyer should identify employees whose loss, absence or inability to continue working would affect revenue generation, contractual delivery, regulatory obligations or other important business functions.

The assessment should also consider whether suitable replacement workers could be recruited and the time and cost involved.

For businesses relying on agency labour, individual subcontractors or other contingent workforce arrangements, the buyer should consider whether changes to right to work verification responsibilities could disrupt the availability of labour after completion.

Workforce dependency should therefore be assessed across both sponsored employment and other relevant labour engagement arrangements.

 

5. Remediation and Corrective Action

 

The buyer should establish whether identified deficiencies can be corrected and what action is required.

Potential measures may include improving record keeping, correcting sponsorship administration, reviewing employment arrangements, strengthening right to work procedures, changing governance responsibilities or making required applications and notifications.

However, not every historic breach can be fully remedied.

Corrective action may improve future compliance without eliminating the consequences of past conduct.

The buyer should distinguish between:

 

• Deficiencies capable of straightforward administrative correction.
• Problems requiring substantive changes to employment or sponsorship arrangements.
• Matters requiring Home Office notification or a new sponsor licence application.
• Historic breaches that may continue to create regulatory or financial exposure.
• Issues requiring further investigation before an appropriate response can be determined.
• Right to work deficiencies requiring changes to contractor or labour supply verification arrangements.

 

The feasibility, cost and timing of remediation should inform the buyer’s commercial assessment.

Where a material problem cannot be resolved before completion, the buyer should consider whether it can be managed through an agreed post-completion plan or whether it affects the viability of the transaction.

 

6. Pre-Completion and Post-Completion Risk Allocation

 

The buyer should determine which matters must be addressed before completion and which can appropriately be managed afterwards.

Issues affecting the legal ability to sponsor business-critical workers or comply with mandatory transaction-related Home Office requirements may need to be resolved as part of the completion planning.

Other deficiencies, such as improvements to internal policies or routine administrative processes, may be suitable for post-completion remediation.

The allocation should reflect the seriousness of the issue, the applicable legal requirements and the buyer’s tolerance for operational and financial risk.

The buyer should avoid assuming that contractual protection can substitute for compliance with mandatory immigration obligations.

Where the transaction creates a new sponsor licence requirement, the parties should identify the applicable Home Office deadlines and establish who is responsible for the application.

Where the acquisition changes the target’s labour supply arrangements, the buyer should also establish which right to work verification obligations will apply from completion and whether the necessary systems and contractual controls are in place.

 

7. Reporting Findings to the Buyer

 

The immigration due diligence report should present findings in a format that supports commercial decision-making.

For each material issue, the report should identify:

 

1. The relevant factual finding.
2. The documents or information supporting the finding.
3. The applicable immigration or right to work requirement.
4. Whether the matter represents a confirmed breach, suspected breach or unresolved information gap.
5. The potential legal, regulatory and operational consequences.
6. The proposed risk classification.
7. The corrective action available.
8. Whether action is required before or after completion.
9. The party responsible for implementing the action.
10. Any recommended contractual protection or transaction adjustment.

 

The report should also identify assumptions, qualifications and limitations arising from incomplete disclosure.

Where significant information remains unavailable, the buyer should not treat the relevant issue as resolved merely because no breach has been demonstrated.

The objective is to provide a clear assessment of the target’s immigration risk profile and the measures required to manage material exposure.

 

 

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Section I: Managing Sponsor Licence Risks in Transaction Documents

 

Where immigration due diligence identifies material sponsorship or right to work risks, the buyer should consider how those risks are addressed in the transaction documentation.

Contractual protections can help allocate responsibility for identified liabilities, require specified action before completion and provide remedies where the seller’s statements or obligations prove inaccurate or are breached.

However, contractual protections do not alter the Home Office’s regulatory powers or remove statutory immigration obligations.

A warranty or indemnity cannot guarantee that a sponsor licence will remain valid, prevent enforcement action or authorise an otherwise non-compliant employment arrangement.

The buyer should therefore combine appropriate contractual protections with direct consideration of the underlying compliance requirements.

 

1. Immigration and Sponsor Licence Warranties

 

Warranties are contractual statements concerning specified facts or circumstances relating to the target business.

In a transaction involving sponsored workers, the buyer may seek warranties addressing the target’s immigration compliance position.

Depending on the circumstances, these may concern:

 

• The existence and status of relevant sponsor licences.
• The immigration routes for which the target is authorised.
• Compliance with applicable sponsor licence duties.
• The accuracy of sponsorship records and disclosures.
• The position of sponsored workers and their immigration permissions.
• Material Home Office correspondence and enforcement history.
• Previous corporate changes affecting sponsorship.
• Outstanding compliance investigations or known breaches.
• Compliance with applicable right to work checking requirements.
• Relevant worker, subcontracting and labour supply arrangements.
• Potential civil penalty exposure arising from illegal working.

 

Warranties should be drafted to reflect the actual risks identified during due diligence.

The buyer should also consider the effect of disclosure, knowledge qualifications, financial limitations and other contractual provisions affecting the remedies available for breach.

A general immigration compliance warranty may provide less useful protection than a specific warranty addressing a known issue affecting the target’s sponsor licence or workforce.

 

2. Immigration Indemnities

 

An indemnity may be appropriate where due diligence identifies a specific potential liability that the buyer wishes to allocate contractually to the seller.

For example, the parties may negotiate an indemnity addressing specified historic immigration compliance failures, subject to the agreed contractual terms.

Potential matters include identified illegal working exposure, known sponsorship breaches or particular costs arising from pre-completion conduct.

Following the 1 October 2026 right to work reforms, indemnity discussions may also need to consider liabilities associated with qualifying worker contracts, individual subcontracting arrangements or relevant labour supply relationships.

However, an indemnity does not automatically transfer statutory liability to the seller as against the Home Office. Its principal function is to allocate specified financial consequences between the contracting parties.

The buyer should consider the scope of the indemnity, any exclusions, financial limits, notification procedures and the seller’s ability to meet a claim.

The appropriate drafting should be determined by the corporate legal team in light of the due diligence findings and the transaction’s commercial terms.

 

3. Pre-Completion Covenants

 

Pre-completion covenants can require the seller or target to take specified actions between exchange and completion.

These may be particularly important where immigration compliance deficiencies have been identified but can be addressed before the acquisition completes.

Potential obligations may include:

 

• Maintaining existing sponsor licence arrangements in accordance with applicable requirements.
• Notifying the buyer of material Home Office correspondence or enforcement developments.
• Completing agreed compliance remediation measures.
• Providing outstanding sponsorship or right to work records.
• Cooperating with required sponsor licence applications or notifications.
• Maintaining appropriate oversight of sponsored employees.
• Notifying the buyer of material changes affecting sponsored employment.
• Addressing agreed deficiencies in right to work verification procedures.
• Providing information concerning relevant labour suppliers and subcontracting arrangements.
• Preserving records needed to establish the applicable statutory excuse.

 

The covenants should be consistent with the parties’ legal obligations and the commercial arrangements governing the period before completion.

The buyer should also consider how compliance with the agreed obligations will be verified.

 

4. Conditions to Completion

 

Where an immigration issue is fundamental to the transaction, the buyer may consider whether it should be addressed through a condition to completion.

This may be relevant where the acquisition depends on a particular sponsorship arrangement, the resolution of a material regulatory concern or completion of a required immigration action.

For example, the parties may need to address whether the intended transaction structure requires a new sponsor licence application and how that requirement affects the proposed completion timetable.

The suitability of a completion condition will depend on the applicable Home Office requirements, the transaction structure and the commercial consequences of delay.

The buyer should not assume that a Home Office decision can be obtained within a particular period unless the relevant processing arrangements support that assumption.

Conditions should also be drafted carefully to avoid requiring actions that cannot lawfully or practically be completed before the relevant transaction event occurs.

 

5. Purchase Price and Financial Adjustments

 

Immigration compliance findings may affect the financial assessment of the target.

Where the buyer identifies material remediation costs, potential liabilities or operational disruption, these may be relevant to purchase price negotiations.

For example, a business may require investment in sponsorship systems, external compliance support, new licence applications or changes to its workforce arrangements.

The buyer should consider whether those costs are appropriately reflected in the transaction valuation or addressed through other agreed mechanisms.

Potential financial measures may include price adjustments, retentions, escrow arrangements or other negotiated protections.

The appropriate approach will depend on the nature and quantifiability of the risk, the seller’s position and the wider transaction terms.

Potential civil penalty exposure should not automatically be treated as a confirmed liability. The buyer should distinguish between established liabilities, credible contingent exposure and speculative risks requiring further investigation.

 

6. Disclosure and Information Limitations

 

Disclosure is particularly important where the buyer relies on warranties concerning immigration compliance.

The seller may disclose known exceptions to the relevant warranties, and the effect of those disclosures will depend on the contractual framework.

The buyer should examine whether disclosures are sufficiently detailed to understand the underlying issue and its potential consequences.

For example, a general statement that the target has experienced immigration compliance difficulties may not provide enough information to assess the seriousness of the problem.

The buyer may require copies of Home Office correspondence, compliance reports, employee records or other supporting documents.

Where the target cannot provide complete records, the buyer should identify the resulting uncertainty and determine whether additional contractual protection or investigation is required.

Information gaps should not be confused with confirmed compliance.

 

7. Post-Completion Cooperation Obligations

 

Some immigration actions may require cooperation between buyer and seller after completion.

This may be relevant where the transaction involves sponsored worker transfers, Home Office notifications, historic compliance investigations or the provision of documents held by the seller.

The transaction documents may therefore need to address access to relevant records, cooperation with regulatory enquiries and responsibility for specified post-completion actions.

Where the target uses third-party labour suppliers, the buyer should also consider whether relevant contractual arrangements provide sufficient access to right to work verification evidence and cooperation in the event of a Home Office enquiry.

Such provisions should be aligned with the applicable statutory obligations, confidentiality requirements and data protection law.

The buyer should ensure that the post-completion arrangements provide practical access to the information necessary to maintain compliance and respond to relevant regulatory matters.

 

8. Allocating Responsibility for Immigration Actions

 

Transaction documents and completion planning should identify which party is responsible for required immigration actions.

This is particularly important where the acquisition involves multiple licensed entities, sponsored worker transfers or a requirement for a new sponsor licence application.

The parties should establish responsibility for:

 

• Relevant Home Office notifications.
• New sponsor licence applications where required.
• Providing supporting documents and corporate information.
• Communicating with affected sponsored workers.
• Maintaining sponsorship records during the transition.
• Updating sponsor licence key personnel and governance arrangements.
• Completing agreed compliance remediation.
• Addressing right to work checking requirements arising from employment transfers.
• Reviewing relevant labour supply and subcontracting arrangements.
• Retaining evidence of completed actions.

 

Responsibility should not be left to informal assumptions between the parties.

Where Home Office deadlines apply, the transaction plan should identify the triggering event, the required action, the responsible organisation and the evidence demonstrating compliance.

The allocation of responsibility between buyer and seller must remain consistent with the statutory duties imposed on the relevant organisations.

 

9. Limits of Contractual Protection

 

Contractual protections are an important component of transaction risk management, but they have limitations.

A seller’s warranty or indemnity does not prevent the Home Office from taking action against a licensed sponsor or an organisation subject to statutory right to work obligations.

Nor does contractual compensation necessarily resolve the operational consequences of losing business-critical sponsored employees or experiencing disruption to the workforce.

Where the acquisition depends on the continued lawful employment of sponsored workers, the buyer must establish that the intended arrangements satisfy the applicable immigration requirements.

Similarly, where the target relies on qualifying worker, subcontracting or labour supply arrangements, the buyer should ensure that the relevant right to work obligations are understood and that effective verification controls are in place.

The most effective approach combines appropriate contractual protections with accurate legal due diligence, timely immigration planning and practical compliance measures.

The purpose of contractual protection is to manage and allocate identified risks, not to replace compliance with the Home Office’s sponsorship and right to work requirements.

 

 

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Section J: Pre-Completion and Post-Completion Planning

 

Sponsor licence due diligence should result in a practical immigration action plan that is integrated into the wider merger or acquisition timetable.

Identifying compliance risks is only part of the exercise. The buyer must also establish what needs to happen before completion, which actions can take place afterwards and who will be responsible for implementing them.

This is particularly important where the transaction changes the direct ownership of a licensed organisation, involves the transfer of sponsored employees or requires a new sponsor licence application.

The Home Office imposes specific requirements for mergers, takeovers and other corporate changes. The relevant actions and deadlines depend on the transaction structure and the circumstances of the sponsoring organisations.

Under the Home Office’s sponsor guidance, relevant corporate changes can trigger reporting and new licence application requirements within 20 working days. The applicable obligations must be established for the particular transaction, including the event that triggers the deadline and the organisation responsible for complying.

The buyer should also consider the right to work implications of the proposed transaction, including the expanded statutory framework effective from 1 October 2026.

Where the acquired business uses contractors, agency labour, individual subcontractors or other contingent workforce arrangements, the integration plan should identify whether the transaction changes the organisations responsible for right to work verification and related compliance.

Immigration planning should begin before the parties commit to a completion date, rather than being treated as an administrative exercise after the acquisition.

 

1. Establishing the Immigration Transaction Plan

 

The buyer should prepare a transaction-specific plan identifying the immigration consequences of the proposed acquisition.

The plan should address the existing sponsor licence arrangements, the intended post-completion corporate structure and the position of sponsored workers.

It should also identify any required Home Office notifications, sponsor licence applications, changes to sponsorship arrangements and other actions necessary to maintain compliance.

The plan should distinguish between obligations arising directly from the acquisition and those triggered by subsequent integration measures.

For example, a share acquisition may be followed by a separate exercise to consolidate employees into another group company. Each stage may require its own immigration assessment.

The transaction plan should establish:

 

• The legal entities currently holding sponsor licences.
• The existing direct and indirect ownership structure.
• The changes to ownership and control arising from the transaction.
• The identity of the legal employers before and after completion.
• Which sponsored employees will remain with their existing employer.
• Which sponsored employees will transfer to another organisation.
• Whether a new sponsor licence application is required.
• Which Home Office notifications must be completed.
• The applicable reporting and application deadlines.
• Whether qualifying business transfer provisions apply to sponsored workers.
• The right to work checking implications of employment transfers.
• Any changes to qualifying worker, subcontracting or labour supply arrangements.
• The personnel responsible for implementing each action.
• The documents and evidence required to demonstrate compliance.

 

The plan should be coordinated with the corporate legal team, HR function, payroll team and those responsible for managing the transaction.

Where the acquisition involves several group companies or a substantial sponsored workforce, a detailed implementation schedule may be necessary.

 

2. Confirming Whether a New Sponsor Licence Is Required

 

One of the most important pre-completion questions is whether the buyer or another relevant organisation must apply for a new sponsor licence.

The answer depends on the corporate structure and the Home Office rules applicable to the transaction.

A buyer should not assume that a valid sponsor licence held by the target can simply be transferred or retained following a relevant change of ownership.

Under C4.5, where there is a relevant change in direct ownership, the existing sponsor licence will be revoked or, where sponsored workers have transferred under the relevant arrangements, made dormant, even where the licensed company remains the same legal entity. Where the company remains the employer and wishes to continue sponsoring workers, the required new sponsor licence application must be made within the applicable 20-working-day period.

However, the buyer should not treat every change in shareholding or indirect ownership as automatically producing identical consequences.

The precise transaction structure must be examined against the current sponsor guidance.

Equally, the existence of a sponsor licence elsewhere within the acquiring group does not automatically establish that the intended post-completion employment arrangements are authorised.

Where a new application is required, the buyer should establish:

 

• Which legal entity must apply.
• Which immigration routes are required.
• Whether the applicant meets the relevant eligibility and suitability requirements.
• What supporting documents must be provided.
• Whether the proposed Authorising Officer and other key personnel meet the applicable requirements.
• Whether a compliance visit may be undertaken.
• What Home Office application deadline applies.
• What processing times and administrative requirements may affect the transaction.
• How existing sponsored workers will be treated during the transition.
• What contingency arrangements may be required if an application is delayed or refused.

 

The Home Office’s sponsor guidance contains specific provisions governing mergers, takeovers and similar changes. These should be applied to the proposed transaction rather than relying exclusively on general sponsor licence application guidance.

Where a new licence application is required within the relevant 20-working-day period, the buyer should ensure that the application timetable and responsibilities are understood before completion.

The buyer should also consider whether the proposed applicant has the personnel, systems, documentation and governance arrangements necessary to satisfy the Home Office’s requirements.

 

3. Managing Home Office Reporting Obligations

 

Relevant changes to a sponsoring organisation must be reported in accordance with the applicable Home Office requirements.

Corporate changes can engage reporting obligations relating to ownership, structure, business operations, sponsored workers and other circumstances.

The buyer should establish which organisation is responsible for each notification and when the relevant reporting obligation arises.

The parties should not assume that all notifications can be completed after the transaction without considering the applicable deadlines.

The Home Office’s sponsor guidance provides a 20-working-day reporting requirement for specified organisational changes, including relevant mergers, takeovers and ownership changes.

The precise triggering event, reporting route, responsible organisation and associated application requirements must be verified for the particular transaction. For an ownership-change request made through the relevant SMS function, the sponsor must complete and send the submission sheet, together with any required supporting evidence, within 5 working days.

The immigration action plan should identify:

 

1. The event giving rise to the reporting obligation.
2. The Home Office requirement engaged.
3. The applicable deadline.
4. The licensed organisation responsible for the notification.
5. The individual authorised to complete the relevant action.
6. The information and supporting evidence required.
7. The method of submission.
8. The evidence demonstrating that the notification was completed.

 

Copies of relevant notifications and Home Office correspondence should be retained as part of the transaction compliance record.

Where the transaction involves multiple sponsors, the parties should determine whether separate notifications or applications are required from different organisations.

The buyer should also establish whether any subsequent integration measures create further reporting obligations after completion.

 

4. Planning for Sponsored Employee Transfers

 

Where sponsored employees will transfer between legal employers, the buyer must establish how the transfer will be treated under the immigration rules.

The analysis should consider whether the transfer falls within the relevant Home Office provisions for mergers, takeovers or business transfers, including cases where TUPE applies.

The fact that employment transfers under TUPE does not, by itself, mean that the receiving organisation can disregard sponsorship requirements.

The Home Office’s sponsor guidance provides specific arrangements for qualifying sponsored worker transfers.

Where the workers continue in the same sponsored occupation code, with no material change taking the role outside the existing sponsored employment, they may be able to continue their employment with the receiving organisation without making individual change-of-employment immigration applications solely because of the transfer.

However, the receiving organisation must still comply with the applicable sponsorship requirements, including holding or obtaining the necessary sponsor licence where required and completing relevant notifications or applications. If the required valid application is not made within 20 working days, or the application is refused, the transferred workers will have their permission cancelled, except any workers who can be sponsored under an appropriate existing licence held by the incoming organisation.

The buyer should establish:

 

• Whether the transfer qualifies under the relevant Home Office provisions.
• Whether the receiving organisation holds the necessary sponsorship authorisation.
• Whether a new sponsor licence application is required.
• Whether the sponsored workers can continue under their existing immigration permission.
• Whether individual immigration applications are required in any particular cases.
• What Home Office notifications must be submitted.
• Whether the workers’ roles, remuneration or employment conditions will change.
• What evidence should be retained concerning the transfer.

 

The position should be assessed for the affected workforce rather than assuming that every employee will require identical action.

Employees may hold different immigration permissions, have different sponsoring employers or be subject to different conditions.

The transfer plan should identify those differences and address them before changes are implemented.

 

5. Coordinating Immigration, TUPE and Right to Work Requirements

 

Immigration and employment law considerations frequently overlap during acquisitions.

An asset acquisition may involve TUPE, consultation obligations, contractual continuity and changes to the employing entity.

At the same time, the buyer must ensure that sponsored employees remain lawfully employed and that the relevant sponsor obligations are satisfied.

The employment law treatment of a transaction does not necessarily determine its immigration consequences.

For example, the continuation of employment rights under TUPE does not automatically resolve whether the acquiring organisation requires a sponsor licence.

The Home Office also provides specific right to work checking arrangements for qualifying TUPE transfers.

On a qualifying TUPE transfer, the incoming employer obtains the benefit of any statutory excuse established by the outgoing employer and has a 60-calendar-day grace period from the transfer in which to complete fresh checks. The grace period does not extend the deadline for any subsequent follow-up check.

This right to work treatment is separate from the sponsor licence rules governing mergers, takeovers and sponsored worker transfers.

The buyer should therefore avoid assuming that compliance with one regime automatically satisfies the other.

The right to work reforms effective from 1 October 2026 also require consideration where the transaction changes the engagement of workers outside conventional employment contracts.

Relevant arrangements may include qualifying worker contracts, individual subcontracting arrangements and specified labour supply relationships.

The buyer should establish which organisations have statutory checking responsibilities and whether the required verification processes and records will be maintained after completion.

The corporate, employment and immigration workstreams should therefore be coordinated.

Where necessary, the buyer should obtain separate specialist advice on employment law obligations and immigration sponsorship requirements.

 

6. Maintaining Compliance Between Exchange and Completion

 

Where exchange and completion take place on different dates, the target’s sponsorship position may change during the intervening period.

Employees may leave, change roles, receive salary adjustments or submit immigration applications. The Home Office may also contact the target or initiate compliance activity.

The buyer should consider whether the transaction documents require the seller to maintain existing sponsorship arrangements and notify the buyer of material developments.

Appropriate controls may include restrictions on significant changes to sponsored employment arrangements without prior consultation, subject to the agreed transaction terms and applicable law.

The buyer should also consider whether updated due diligence is required shortly before completion.

This can be particularly important where there is a substantial interval between the initial investigation and the completion date.

Where the target uses contingent labour, the buyer should also monitor material changes to relevant labour supply contracts, subcontracting arrangements and right to work verification procedures.

Changes introduced after 1 October 2026 should be assessed against the expanded statutory framework where applicable.

The buyer should establish whether new engagements or changes to existing arrangements create additional verification requirements or potential civil penalty exposure.

 

7. Completion-Day Responsibilities

 

The completion process should include confirmation that the immigration arrangements remain consistent with the agreed transaction plan.

Relevant checks may include confirming the final corporate structure, the employing entities, the status of required applications and the position of any outstanding Home Office notifications.

Where sponsored employees are transferring, the parties should confirm the agreed arrangements for employment records, sponsorship administration and communication with affected workers.

The buyer should ensure that appropriately authorised personnel can administer sponsorship matters immediately following completion.

A change in ownership should not leave the acquired business without effective access to its sponsorship records or without personnel responsible for ongoing compliance.

The buyer should also confirm whether the acquisition changes responsibility for right to work checks, particularly where workers transfer between employers or relevant labour supply arrangements are replaced or consolidated.

Completion records should identify any outstanding immigration actions and the individuals responsible for implementing them.

 

8. Post-Completion Sponsor Licence Governance

 

Following completion, the buyer should review whether the acquired business has an appropriate sponsorship governance structure.

This may involve appointing or updating key personnel, reviewing SMS access, confirming internal reporting responsibilities and integrating sponsorship compliance into the buyer’s wider governance arrangements.

The buyer should establish clear responsibility for monitoring sponsored employees, maintaining records, identifying reportable events and responding to Home Office correspondence.

Where the acquired business will retain a separate sponsor licence, the governance arrangements should reflect the responsibilities of that licensed entity.

Where sponsorship responsibilities will be consolidated or changed, the buyer should ensure that the proposed arrangements are permitted under the applicable Home Office requirements.

Where the buyer operates multiple licensed entities, it should avoid assuming that centralised HR administration removes the separate regulatory responsibilities of each sponsor.

The post-completion governance review should also consider whether the target’s right to work policies and verification systems remain appropriate under the regime effective from 1 October 2026.

Where relevant, responsibility should be allocated for verifying qualifying workers, individual subcontractors and labour supplied through contractual arrangements that fall within the expanded framework.

 

9. Post-Acquisition Compliance Review

 

The buyer should consider conducting a targeted compliance review after completion, particularly where due diligence identified weaknesses or where access to records was restricted before the acquisition.

The review should confirm that agreed remediation measures have been implemented and that sponsored employment arrangements remain consistent with the applicable requirements.

It should also test whether new HR, payroll and reporting systems capture the information necessary for sponsorship compliance.

Post-completion reviews can be especially valuable where the buyer has inherited a substantial sponsored workforce or intends to make significant organisational changes.

The review should also consider the target’s wider right to work compliance, including relevant contingent workforce arrangements and any changes introduced under the expanded October 2026 regime.

However, a post-completion audit should not be used as a substitute for investigating material issues before the acquisition where those issues could affect completion or the commercial viability of the transaction.

Where historic deficiencies are identified after completion, the buyer should distinguish between corrective action needed to achieve future compliance and potential liabilities arising from earlier conduct.

 

10. Planning for Future Restructuring

 

The immigration consequences of an acquisition may continue beyond the initial integration period.

The buyer may subsequently relocate operations, consolidate business units, transfer employees between group companies or change sponsored workers’ roles.

These measures can create further sponsorship reporting or application requirements.

The buyer should therefore incorporate immigration compliance into its ongoing corporate change procedures.

Proposed restructurings should be reviewed before implementation to determine whether they affect existing sponsor licences or sponsored employees.

The same principle applies to changes in workforce supply arrangements. Replacing direct employment with qualifying worker contracts, individual subcontracting or other relevant labour supply arrangements may engage additional right to work obligations.

This is particularly important for private equity-backed businesses pursuing multiple acquisitions, group consolidation strategies or workforce restructuring programmes.

Immigration compliance should be treated as an ongoing corporate governance responsibility rather than a one-off acquisition requirement.

 

 

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Section K: Sponsor Licence Due Diligence Checklist for Buyers

 

A structured document request and review checklist helps buyers establish the target’s sponsorship position and identify material risks before completion.

The checklist should be adapted to the transaction, the target’s business model and the number and categories of sponsored workers.

It should also reflect the expanded right to work framework effective from 1 October 2026, particularly where the target uses contingent labour, individual subcontractors, agency workers or other relevant workforce supply arrangements.

The checklist should not be treated as a substitute for specialist legal analysis. The significance of each document depends on what it reveals about the target’s compliance arrangements and the proposed acquisition.

The buyer should request documentary evidence wherever possible and reconcile information across corporate, HR, payroll, immigration and contractual records.

 

1. Sponsor Licence Documentation

 

Documents or Information Requested	What the Buyer Should Verify	Buyer Significance
Sponsor licence details, including licensed entity, routes and rating	That the appropriate legal entity holds valid sponsorship authorisation for the relevant routes.	Establishes the existing sponsorship position and identifies potential authorisation gaps.
Relevant SMS records and licence information	Consistency between current sponsorship arrangements and management disclosures.	Helps identify administrative discrepancies and reporting concerns.
Details of licence conditions, restrictions or outstanding matters	Whether the target’s sponsorship activity is subject to limitations.	Identifies restrictions affecting recruitment or workforce continuity.
Historic licence applications and material variations	How the organisation’s sponsorship arrangements have developed.	May reveal previous structural or compliance issues.
Records of previous licence downgrading or suspension	The reasons for enforcement action and whether corrective measures were completed.	Identifies potential regulatory exposure and governance weaknesses.
Material Home Office correspondence	Whether unresolved enquiries, warnings or enforcement matters exist.	May affect completion planning and contractual protection.

 

The buyer should verify that the sponsor licence relates to the appropriate legal entity and that the information provided is consistent with the proposed transaction structure.

Where the target has undergone previous ownership changes, the review should establish whether those changes were correctly managed under the applicable Home Office requirements.

 

2. Corporate Ownership and Transaction History

 

Documents or Information Requested	What the Buyer Should Verify	Buyer Significance
Current and historic group structure charts	The identity of sponsoring entities and their ownership relationships.	Establishes the corporate structure relevant to sponsorship.
Details of direct and indirect ownership and control	Whether relevant ownership changes have occurred or will arise from the acquisition.	May identify licence revocation, reporting or new application requirements.
Records of previous acquisitions, disposals and restructurings	Whether earlier transactions affected the sponsor licence or sponsored workers.	Identifies historic compliance risks.
Home Office notifications relating to previous corporate changes	Whether required notifications and applications were completed.	Helps establish whether the current sponsorship arrangements were correctly maintained.
Details of employees transferred between entities	Whether historic sponsored worker transfers were managed under the relevant rules.	May reveal unresolved sponsorship or employment compliance issues.
Proposed post-completion group and employment structure	Which entities will employ and sponsor workers following completion.	Determines future sponsorship and reporting requirements.

 

Particular attention should be paid to previous corporate changes where there is no clear evidence that the immigration consequences were considered.

The buyer should distinguish between direct ownership changes and other corporate changes rather than assuming that every transaction has identical sponsorship consequences.

 

3. Sponsored Workforce Information

 

Documents or Information Requested	What the Buyer Should Verify	Buyer Significance
Complete sponsored employee schedule	The size, composition and employing entities of the sponsored workforce.	Establishes workforce dependency and the scope of immigration review.
Relevant Certificates of Sponsorship	Recorded occupations, salaries, working arrangements and sponsorship details.	Identifies potential discrepancies with actual employment.
Immigration permission details and expiry dates	Whether workers hold relevant permission and when further action may be required.	Identifies employees requiring immigration planning.
Employment contracts and role descriptions	Consistency between actual duties and sponsored occupations.	Assesses compliance with relevant sponsorship requirements.
Payroll and working hours records	Whether actual remuneration satisfies the applicable immigration requirements.	Identifies salary compliance exposure.
Records of changes to roles, remuneration or working arrangements	Whether changes were assessed and reported where required.	May reveal historic sponsorship breaches.
Details of pending immigration applications	Whether unresolved applications could be affected by the transaction.	Identifies employee-specific completion risks.
Schedule of business-critical sponsored employees	Which employees are essential to the target’s operations.	Assesses workforce continuity and commercial exposure.

 

The buyer should reconcile workforce information across HR, payroll and sponsorship records rather than relying on a single management-produced schedule.

Where the proposed transaction involves employee transfers, the review should identify whether the relevant Home Office qualifying transfer provisions apply and whether any individual immigration applications are required.

 

4. Sponsor Compliance Records

 

Documents or Information Requested	What the Buyer Should Verify	Buyer Significance
Sponsorship compliance policies and procedures	Whether the target has a documented control framework.	Assesses the organisation’s compliance governance.
Records required under sponsor guidance, including Appendix D	Whether required documents have been retained.	Identifies record keeping deficiencies.
Attendance and absence monitoring records	Whether the target monitors sponsored workers appropriately.	Assesses worker monitoring arrangements.
SMS reporting records	Whether relevant changes were reported within applicable deadlines.	Identifies reporting failures.
Internal compliance audit reports	Whether known weaknesses were identified and addressed.	Provides evidence of compliance history.
Staff training records	Whether relevant personnel understand sponsorship responsibilities.	Assesses governance and operational resilience.
Compliance incident registers or escalation records	Whether problems have been recorded and managed.	Identifies recurring or unresolved deficiencies.
Evidence of completed remediation	Whether corrective measures were implemented and remain effective.	Helps assess residual regulatory exposure.

 

The review should test the operation of compliance procedures, not simply confirm that written policies exist.

Where the target has previously experienced compliance problems, the buyer should assess whether the deficiencies were isolated or systemic.

 

5. Right to Work and Illegal Working

 

Right to work due diligence should address both conventional employment arrangements and the additional working relationships covered by the statutory framework effective from 1 October 2026.

The buyer should establish which legal entities have the relevant checking responsibilities, whether checks have been conducted in accordance with the applicable requirements and whether sufficient evidence has been retained to establish an available statutory excuse.

 

Documents or Information Requested	What the Buyer Should Verify	Buyer Significance
Right to work checking policies	Whether procedures reflect the requirements applicable to the target’s workforce.	Assesses the adequacy of the checking framework.
Relevant right to work check records	Whether checks were completed correctly and evidence retained.	Identifies potential civil penalty exposure.
Records of required follow-up checks	Whether time-limited permissions were monitored and checked where required.	Identifies gaps affecting continued lawful working.
Registers of workers engaged outside conventional employment contracts	Whether qualifying worker contracts and other relevant engagements have been identified.	Assesses the scope of the expanded October 2026 regime.
Individual subcontractor agreements	Whether the contractual arrangements engage relevant statutory checking obligations.	Identifies potential non-employee right to work exposure.
Agency and labour supply agreements	How labour is supplied and which organisations have relevant statutory responsibilities.	Assesses potential extended civil penalty exposure.
Records of labour supplier verification procedures	Whether the target has appropriate controls over relevant supply arrangements.	Identifies contractual and operational compliance weaknesses.
Digital verification provider details	Whether providers used for right to work checks satisfy applicable registration requirements.	Assesses the validity of relevant digital checking arrangements.
Digital verification and identity comparison records	Whether prescribed verification evidence has been retained.	Identifies deficiencies affecting the applicable statutory excuse.
Details of illegal working allegations or investigations	Whether the target faces known enforcement exposure.	Assesses potential legal and financial consequences.
Civil penalty correspondence or notices	Whether liabilities or unresolved proceedings exist.	Identifies known financial and regulatory exposure.
Records of internal right to work audits	Whether deficiencies were identified and corrective measures implemented.	Assesses historic compliance and remediation.

 

The buyer should distinguish between checks conducted before 1 October 2026 and arrangements governed by the revised framework from that date.

The introduction of new requirements does not automatically mean that every historic check must be repeated. The relevant rules and statutory codes applicable at the time of the original check should be considered, together with any subsequent follow-up obligations.

Where the target uses digital verification, the buyer should not assume that all workers must be checked through a digital provider. The appropriate method depends on the individual’s circumstances and the applicable Home Office guidance.

The buyer should assess right to work risks separately from sponsor licence compliance while recognising that the same underlying conduct may engage both regimes.

 

6. Home Office Compliance and Enforcement

 

Documents or Information Requested	What the Buyer Should Verify	Buyer Significance
Records of Home Office compliance visits	The target’s inspection history.	Identifies previous regulatory scrutiny.
Compliance visit findings and action plans	Whether deficiencies were identified and addressed.	Assesses regulatory concerns and remediation.
Responses to Home Office enquiries	Whether explanations and evidence were supplied appropriately.	Identifies unresolved issues.
Licence downgrading or suspension correspondence	The reasons for enforcement action and the current position.	Identifies serious historic or current concerns.
Evidence of completed corrective measures	Whether remediation was effective.	Assesses residual compliance risk.
Details of outstanding Home Office matters	Whether unresolved issues could affect completion.	Identifies transaction dependencies.

 

Where enforcement correspondence is incomplete, the buyer should record the limitation and seek further clarification.

The absence of previous Home Office enforcement action should not be treated as confirmation of compliance.

 

7. Sponsor Licence Key Personnel

 

Documents or Information Requested	What the Buyer Should Verify	Buyer Significance
Current Authorising Officer details	Who has senior responsibility for sponsorship.	Assesses governance and accountability.
Key Contact and Level 1 User details	Who administers the licence and communicates with the Home Office.	Establishes operational continuity.
Details of other SMS users	Whether access and delegation arrangements are appropriate.	Identifies administration vulnerabilities.
Organisational chart showing compliance responsibilities	Whether sponsorship duties are clearly allocated.	Assesses governance arrangements.
Planned departures or role changes	Whether completion will affect key personnel.	Identifies post-completion continuity risks.
Handover and succession arrangements	Whether sponsorship administration can continue effectively.	Supports transaction planning.

 

The buyer should establish whether sponsorship administration will remain effective immediately following completion.

Where key personnel will leave, appropriate replacements and Home Office reporting requirements should be considered in advance.

 

8. Transaction-Specific Information

 

Documents or Information Requested	What the Buyer Should Verify	Buyer Significance
Proposed transaction structure	The ownership and employment changes arising from the acquisition.	Determines the sponsorship consequences.
Details of employees transferring between entities	Whether qualifying transfer provisions apply.	Identifies immigration and employment transfer requirements.
Buyer’s existing sponsor licence arrangements	Whether the buyer holds relevant authorisation.	Assesses the need for a new application.
Proposed integration and restructuring plans	Whether subsequent changes will affect sponsorship or right to work obligations.	Identifies further compliance requirements.
Proposed completion timetable	Whether required immigration actions can be accommodated.	Assesses deadlines and transaction dependencies.
Immigration advice previously obtained by the target	Whether earlier assessments remain accurate and relevant.	Identifies assumptions requiring verification.
Proposed allocation of immigration responsibilities	Which organisation must take each required action.	Supports compliance and completion planning.
Proposed changes to labour supply arrangements	Whether the transaction affects relevant right to work responsibilities.	Assesses exposure under the expanded October 2026 framework.

 

The buyer should ensure that the transaction structure reviewed during due diligence is the structure ultimately implemented.

Material changes to the acquisition arrangements may require the immigration analysis to be revisited.

 

9. Turning the Checklist into a Due Diligence Report

 

The documents obtained should be assessed and incorporated into a written report.

For each material finding, the report should explain the issue, the evidence reviewed, the relevant immigration requirement and the potential consequence for the buyer.

It should also distinguish between matters that can be resolved before completion and those requiring post-completion action.

A useful report should provide a prioritised action plan rather than simply reproduce the documents received.

The buyer should be able to identify which issues require immediate escalation, which affect the transaction documents and which can be managed through ordinary compliance improvements.

Where right to work issues are identified, the report should distinguish between historic checks, current statutory obligations and any extended liability arising from relevant working arrangements after 1 October 2026.

The report should also identify unresolved information gaps and explain how they affect the reliability of the buyer’s risk assessment.

 

 

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Section L: Common Sponsor Licence Due Diligence Mistakes

 

Sponsor licence risks are frequently overlooked where immigration is treated as a minor part of general employment or corporate due diligence.

The following mistakes can create avoidable regulatory, financial and operational exposure.

 

1. Assuming the Sponsor Licence Transfers with the Business

 

One of the most significant errors is treating the sponsor licence as an asset that automatically passes to the buyer.

A sponsor licence is an authorisation granted to an organisation subject to Home Office requirements.

Its treatment following a merger, acquisition or restructuring depends on the legal entities involved and the relevant sponsorship rules.

Buyers should establish the licence consequences of the transaction before completion.

 

2. Assuming a Share Acquisition Cannot Affect Sponsorship

 

Because a share acquisition ordinarily preserves the target’s legal identity, buyers may assume that no sponsor licence action is required.

However, changes in direct ownership can engage specific Home Office requirements even where the target continues to exist as the same company.

Where C4.5 applies, a relevant direct ownership change will result in the existing licence being revoked or, where sponsored workers have transferred under the relevant arrangements, made dormant. Where the company remains the employer and wishes to continue sponsoring workers, the required new sponsor licence application must be made within the applicable 20-working-day period.

The buyer should examine the precise ownership changes and their consequences under the applicable guidance.

Not every indirect ownership change should automatically be treated as having the same consequences.

 

3. Relying Solely on the Public Register of Sponsors

 

The Home Office’s public register can assist with verifying sponsorship authorisation.

However, it does not provide a comprehensive assessment of the organisation’s compliance history, internal records or outstanding sponsorship risks.

The buyer should obtain supporting evidence from the target and investigate material discrepancies.

A valid licence does not establish that every sponsorship duty has been fulfilled.

 

4. Reviewing Immigration Permissions Without Reviewing Employment

 

A sponsored employee may hold apparently valid immigration permission while the underlying employment arrangements have changed.

The buyer should assess actual duties, remuneration, working hours and employment arrangements against the applicable sponsorship requirements.

Checking immigration expiry dates alone will not identify all material compliance issues.

Salary and occupation compliance should be assessed against the requirements applicable to each employee rather than a single current threshold.

 

5. Overlooking Historic Corporate Changes

 

Previous acquisitions, ownership changes and employee transfers may have created sponsorship obligations.

Where those obligations were not correctly addressed, the consequences may remain relevant to the current transaction.

The buyer should examine the target’s corporate history rather than limiting the investigation to its present structure.

Particular attention should be paid to previous direct ownership changes and transfers of sponsored workers between legal entities.

 

6. Treating TUPE as a Complete Immigration Solution

 

TUPE may preserve employment rights and continuity of employment in qualifying transfers.

It does not automatically resolve every sponsor licence or immigration requirement arising from the transfer.

The Home Office has specific provisions concerning sponsored workers affected by relevant business transfers.

Where the conditions are satisfied, workers may be able to continue without individual change-of-employment immigration applications solely because of the qualifying transfer.

However, the receiving organisation must still satisfy the relevant sponsorship requirements.

The buyer should also consider the separate right to work checking arrangements applicable to qualifying TUPE transfers.

 

7. Leaving Immigration Advice Until Immediately Before Completion

 

Late identification of sponsorship requirements can create difficulties where a new licence application, Home Office notification or other action is necessary.

The buyer may discover that the proposed timetable does not accommodate the relevant requirements.

Immigration due diligence should begin early enough to influence the transaction structure and completion planning.

This is particularly important where the Home Office’s merger and takeover provisions impose 20-working-day reporting or application requirements.

 

8. Assuming Historic Compliance Failures Can Always Be Corrected

 

Some deficiencies can be addressed through improved records, revised procedures or appropriate notifications.

However, correcting an issue does not necessarily remove the consequences of an earlier breach.

The buyer should distinguish between future compliance improvements and potential regulatory exposure arising from historic conduct.

The same principle applies to right to work compliance. Introducing improved verification procedures does not automatically eliminate potential liability arising from earlier unlawful working arrangements.

 

9. Relying Exclusively on Warranties and Indemnities

 

Contractual protections may allocate financial risk between buyer and seller.

They cannot guarantee that the Home Office will maintain a sponsor licence or permit sponsored workers to continue in arrangements that do not satisfy the immigration requirements.

Nor can contractual indemnities automatically remove statutory right to work obligations or prevent enforcement action.

Material regulatory risks must be addressed directly rather than relying solely on contractual remedies.

 

10. Ignoring Post-Acquisition Integration Plans

 

The acquisition itself may be manageable from an immigration perspective, while the buyer’s intended integration programme creates further sponsorship obligations.

Transferring employees between group companies, changing roles, consolidating payroll or restructuring operations may affect sponsorship arrangements.

The buyer should review the proposed post-completion operating model before implementing those changes.

Changes to labour supply arrangements should also be assessed against the expanded right to work regime effective from 1 October 2026.

 

11. Failing to Distinguish Legal, Regulatory and Commercial Risks

 

An identified compliance issue does not necessarily create the same consequences for every buyer.

The legal liability may remain with a particular entity, while the operational impact affects the acquired business or the wider group.

The buyer should identify precisely what risk exists, which party may bear it and what action is necessary to manage it.

This allows transaction protections and remediation measures to be tailored to the actual exposure.

 

12. Failing to Establish Responsibility for Immigration Actions

 

Even where the parties understand that Home Office notifications or applications are required, problems can arise if responsibility is not clearly allocated.

The buyer and seller should agree which organisation will take each action, who will provide the supporting information and how completion of the relevant steps will be evidenced.

This is particularly important where the transaction involves multiple licensed entities or a substantial sponsored workforce.

Responsibility for statutory compliance must be distinguished from the parties’ contractual allocation of administrative tasks and financial risk.

 

13. Failing to Investigate Contractors and Labour Supply Arrangements

 

A significant due diligence mistake is assuming that right to work compliance concerns only the target’s directly employed workforce.

The reforms effective from 1 October 2026 expanded the statutory framework to cover specified working arrangements beyond conventional employment contracts.

Depending on the circumstances, relevant worker contracts, individual subcontracting arrangements and labour supply relationships may create additional checking obligations or extended civil penalty exposure.

Buyers should therefore investigate how the target obtains labour and which organisations have statutory responsibilities under the applicable provisions.

The review should consider the contractual arrangements, verification procedures, retained evidence and any known illegal working concerns.

However, the buyer should not assume that every contractor or supplier relationship falls within the expanded regime. The statutory position depends on the relevant working arrangements and legal requirements.

Businesses relying heavily on contingent labour may face material right to work exposure even where they employ relatively few sponsored workers directly.

 

14. Applying the October 2026 Right to Work Rules Retrospectively

 

The introduction of new right to work requirements on 1 October 2026 does not mean that every historic check must automatically be repeated.

Buyers should distinguish between checks conducted under earlier requirements, ongoing obligations and working arrangements governed by the revised framework.

The relevant statutory code and Home Office guidance applicable at the time of the check should be considered.

The buyer should also establish whether any subsequent follow-up checking obligation arose and whether the current engagement arrangements satisfy the requirements now in force.

Failure to distinguish between historic and current requirements may lead to an inaccurate assessment of legal exposure.

 

15. Assuming Digital Verification Is Mandatory for Every Worker

 

The October 2026 right to work changes include requirements affecting digital verification service providers.

Where an organisation uses a digital verification provider for relevant right to work checks, it should establish that the provider meets the applicable registration requirements and that the prescribed verification evidence is retained.

However, digital verification is not compulsory for every worker.

The appropriate checking method depends on the individual’s circumstances and the applicable Home Office guidance.

Buyers should therefore assess whether the target uses the correct checking methods rather than assuming that a single digital process is suitable for every category of worker.

 

16. Failing to Verify Management Statements Against Evidence

 

Management assurances can assist with understanding the target’s compliance arrangements, but they should not replace documentary investigation.

A statement that the business has never experienced sponsorship problems does not establish that its records, reporting practices or employment arrangements satisfy the relevant requirements.

The buyer should seek supporting evidence from SMS records, payroll data, employment documentation, Home Office correspondence and relevant right to work records.

Where the target cannot provide sufficient evidence, the resulting uncertainty should be identified in the due diligence report.

The buyer should distinguish between verified compliance, management representations and unresolved information gaps.

This is particularly important where the acquisition involves business-critical sponsored employees or material reliance on contingent labour.

 

 

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Section M: Sponsor Licence Due Diligence FAQs

 

What is sponsor licence due diligence in an M&A transaction?

Sponsor licence due diligence is the review of a target business’s sponsorship arrangements, compliance history, sponsored workforce and transaction-specific immigration risks. It should establish whether the existing licence is valid and compliant, how the transaction affects sponsorship and what action is required before or after completion.

 

Why should sponsor licence due diligence be carried out before completion?

Immigration issues can affect workforce continuity, transaction timing, contractual protections and the buyer’s post-completion operating model. Early review allows the parties to identify required Home Office notifications, licence applications, worker transfer issues and compliance deficiencies before they disrupt the transaction.

 

Does a buyer automatically acquire the target’s sponsor licence?

No. A sponsor licence is granted to a specific organisation and does not transfer automatically as a commercial asset. The effect of an acquisition depends on the transaction structure, the licensed entity and any change in ownership or employing entity.

 

Does a share acquisition affect the target’s sponsor licence?

It can. Where the transaction constitutes a relevant change in direct ownership under C4.5, the existing licence will be revoked or, where sponsored workers have transferred under the relevant arrangements, made dormant. Where the licensed company remains the employer and wishes to continue sponsoring workers, the required new sponsor licence application must be made within the applicable 20-working-day period.

 

Does an indirect change in ownership always require a new sponsor licence?

No. A change higher up the ownership chain does not automatically have the same effect as a change in the direct ownership of the licensed organisation. The corporate structure before and after completion should be reviewed against the Home Office’s merger and takeover guidance.

 

What sponsor licence documents should a buyer request during due diligence?

Relevant documents can include sponsor licence details, SMS records, Certificates of Sponsorship, sponsored worker schedules, Home Office correspondence, compliance visit records, action plans, Appendix D records, organisational charts and evidence of previous corporate change notifications or licence applications.

 

What should a buyer check about sponsored workers?

The review should identify the sponsoring and employing entity, immigration route, occupation code, salary, working hours, immigration permission expiry date, actual duties, work location, pending applications and any reportable changes since sponsorship began.

 

What happens where sponsored workers transfer to the buyer?

The buyer must establish whether the transfer falls within the Home Office’s qualifying business transfer provisions and whether the receiving organisation holds or must obtain the necessary sponsor licence. Where the relevant conditions apply, the workers may be able to continue without individual change-of-employment applications.

 

When can transferred sponsored workers continue without a new immigration application?

Where the qualifying transfer provisions apply, the worker must continue in the same sponsored occupation code, with no material change taking the role outside the existing sponsored employment, and the receiving organisation must satisfy the applicable sponsorship requirements.

 

What happens if the incoming organisation does not obtain the required sponsor licence?

If the required valid application is not made within 20 working days, or the application is refused, the transferred workers will have their permission cancelled, except any workers who can be sponsored under an appropriate existing licence held by the incoming organisation.

 

Does TUPE transfer a sponsor licence?

No. TUPE may preserve employment rights and continuity in a qualifying transfer, but it does not transfer sponsorship authorisation. The receiving organisation must separately satisfy the Home Office sponsor licence and worker transfer requirements.

 

What right to work issues should be reviewed on a TUPE transfer?

On a qualifying TUPE transfer, the incoming employer obtains the benefit of any statutory excuse established by the outgoing employer, but can inherit exposure where the original check was defective. The Home Office advises fresh checks and allows a 60-calendar-day grace period from the transfer in which to complete them. The grace period does not extend the deadline for any subsequent follow-up check.

 

Does a buyer need to review contractors and contingent workers?

Potentially. Since 1 October 2026, the statutory right to work framework extends in specified circumstances to worker contracts, individual subcontracting arrangements and qualifying online matching arrangements. The buyer should establish which engagements fall within the regime and which organisation has the relevant checking obligation.

 

Does a share or asset acquisition require all right to work checks to be repeated?

No. Historic checks should be assessed against the requirements applicable when they were undertaken. A transaction does not, by itself, create a general requirement to repeat every check, although fresh checks may be appropriate or required in particular transfer or follow-up circumstances.

 

What should a buyer do if due diligence identifies sponsor compliance problems?

The buyer should assess the seriousness of the issue, whether it can be remedied, whether Home Office action may be required and whether the risk affects completion, workforce continuity or transaction value. Appropriate responses may include pre-completion remediation, warranties, indemnities, completion conditions or post-completion compliance measures.

 

Can warranties and indemnities protect the buyer from sponsor licence risk?

They can allocate specified commercial and financial risks between the parties, but they do not prevent the Home Office from exercising its regulatory powers. Contractual protection does not replace compliance with sponsorship or right to work requirements.

 

What should be checked if the target has been suspended or downgraded?

The buyer should review the Home Office correspondence, reasons for the action, any action plan, remediation undertaken and outstanding restrictions. While a licence is suspended, the sponsor cannot assign any Certificates of Sponsorship.

 

What should buyers check about previous acquisitions or restructurings?

The buyer should establish whether earlier ownership changes, mergers, takeovers or employee transfers were reported and managed correctly. Historic failures can affect the current licensing position and may create continuing regulatory exposure.

 

What are the key Home Office deadlines in M&A transactions?

Relevant mergers, takeovers and ownership changes can trigger 20-working-day reporting and licence application requirements. Worker-specific changes may be subject to separate deadlines. For an ownership-change request made through the relevant SMS function, the submission sheet and any required supporting evidence must be sent within 5 working days.

 

What should happen after completion?

The buyer should implement any required Home Office actions, confirm sponsor governance, integrate sponsored workers into the appropriate compliance systems, review right to work controls and assess any further restructuring before changes to employment or sponsorship arrangements are implemented.

 

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Section N: Glossary

 

Term	Meaning
Sponsor licence	Home Office authorisation allowing an eligible organisation to sponsor workers under specified immigration routes.
Licensed sponsor	An organisation authorised by the Home Office to sponsor workers and subject to ongoing sponsorship duties.
Sponsor licence due diligence	The investigation of a target business’s sponsorship arrangements, compliance history, sponsored workforce and transaction-related immigration risks.
Direct ownership	The immediate ownership of the licensed organisation, relevant to the Home Office’s merger, takeover and change-of-ownership provisions.
Indirect ownership	Ownership higher in the corporate structure where the licensed organisation’s immediate owner may remain unchanged.
Change in direct ownership	A relevant ownership change falling within C4.5, which results in the existing sponsor licence being revoked or, where applicable, made dormant.
Business transfer	A transaction in which a business, undertaking or part of its operations transfers from one organisation to another.
TUPE	The Transfer of Undertakings (Protection of Employment) Regulations 2006, which can protect employment rights and continuity in qualifying transfers.
Certificate of Sponsorship (CoS)	An electronic sponsorship record assigned by an authorised sponsor to support an eligible sponsored worker’s immigration application.
Sponsored occupation code	The occupational classification assigned to the sponsored role and used to assess relevant sponsorship and immigration requirements.
Change-of-employment application	An immigration application required where a sponsored worker changes employment or role in circumstances requiring new immigration permission.
Sponsor Management System (SMS)	The Home Office online system used by licensed sponsors to manage sponsorship activity and submit specified reports and requests.
Authorising Officer	The senior individual responsible for overall oversight of an organisation’s sponsorship arrangements and compliance.
Key Contact	The person nominated as the principal point of contact with the Home Office for specified sponsorship matters.
Level 1 User	An authorised SMS user permitted to carry out specified sponsor licence management and reporting functions.
Appendix D	Home Office guidance setting out the records licensed sponsors must retain for sponsorship compliance.
Sponsor licence suspension	A Home Office compliance measure under which the sponsor cannot assign any Certificates of Sponsorship while the licence is suspended.
Sponsor licence revocation	Withdrawal of a sponsor licence by the Home Office, removing the organisation’s sponsorship authorisation.
Dormant licence	A sponsor licence placed into dormant status by the Home Office in specified corporate change circumstances.
Right to work check	A prescribed verification process used to establish whether an individual has permission to undertake relevant work in the UK.
Statutory excuse	A defence against a civil penalty for illegal working where the applicable right to work checking requirements have been satisfied.
Employer Checking Service (ECS)	A Home Office service used in specified circumstances to verify an individual’s right to work.
Positive Verification Notice (PVN)	Home Office confirmation issued through the Employer Checking Service that can establish a time-limited statutory excuse where the conditions are met.
Digital verification service	A service used for eligible digital right to work checks where the provider and process satisfy the applicable requirements.
Worker contract	A qualifying working arrangement that may fall within the expanded statutory right to work framework effective from 1 October 2026.
Individual subcontractor	An individual engaged under a subcontracting arrangement that may fall within the expanded right to work regime in specified circumstances.
Immigration due diligence	The broader assessment of immigration compliance, workforce status and related regulatory risks within a corporate transaction.
Warranty	A contractual statement concerning specified facts or circumstances that may give rise to a remedy if inaccurate, subject to the transaction agreement.
Indemnity	A contractual mechanism allocating responsibility for specified losses or liabilities between transaction parties.
Completion	The stage at which the transaction is implemented and the agreed ownership, asset or business transfer takes effect.

 

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Section O: Useful Links

 

Description	URL
Home Office: Workers and Temporary Workers – Sponsor Duties and Compliance (Part 3)	https://www.gov.uk/government/publications/workers-and-temporary-workers-guidance-for-sponsors-part-3-sponsor-duties-and-compliance
Home Office: Workers and Temporary Workers – Sponsor a Worker (Part 2)	https://www.gov.uk/government/publications/workers-and-temporary-workers-guidance-for-sponsors-part-2-sponsor-a-worker
Home Office: Workers and Temporary Workers – Apply for a Licence (Part 1)	https://www.gov.uk/government/publications/workers-and-temporary-workers-guidance-for-sponsors-part-1-apply-for-a-licence
Home Office: Sponsor Management System User Manual	https://www.gov.uk/government/publications/use-the-sponsorship-management-system-sms-user-manual
Home Office: Appendix D – Keeping Records for Sponsorship	https://www.gov.uk/government/publications/keep-records-for-sponsorship-appendix-d
Home Office: Appendix A – Supporting Documents for Sponsor Applications	https://www.gov.uk/government/publications/supporting-documents-for-sponsor-applications-appendix-a
Home Office: Employer’s Guide to Right to Work Checks	https://www.gov.uk/government/publications/right-to-work-checks-employers-guide
Home Office: Right to Work Checklist	https://www.gov.uk/government/publications/right-to-work-checklist
Home Office: Code of Practice on Avoiding Unlawful Discrimination in Right to Work Checks	https://www.gov.uk/government/publications/right-to-work-checks-code-of-practice-on-avoiding-discrimination
Transfer of Undertakings (Protection of Employment) Regulations 2006	https://www.legislation.gov.uk/uksi/2006/246/contents
Register of Licensed Sponsors: Workers	https://www.gov.uk/government/publications/register-of-licensed-sponsors-workers
DavidsonMorris: Sponsor Licence	https://www.davidsonmorris.com/sponsor-licence/
DavidsonMorris: Sponsor Licence Compliance	https://www.davidsonmorris.com/sponsor-licence-compliance/
DavidsonMorris: Right to Work Checks	https://www.davidsonmorris.com/right-to-work-checks/

 

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