Tax advisers have reported a marked increase in HMRC scrutiny over the past year. The debate is no longer limited to personal costs such as visa application fees and the Immigration Health Surcharge. HMRC is also challenging the treatment of the Certificate of Sponsorship fee and the Immigration Skills Charge, which many businesses have historically regarded as costs entirely borne by the employer.
This does not appear to be a change in legislation or a clearly published new rule, but rather a stricter interpretation emerging through HMRC compliance reviews, which leaves employers with considerable uncertainty.
Why can immigration expenses become taxable benefits?
UK employment tax rules broadly define an employment-related benefit. A benefit provided to an employee or their family because of their employment may fall within the benefits code, with its taxable value treated as employment income.
Visa application fees and the Immigration Health Surcharge are personal liabilities of the applicant. When an employer pays these costs, the employee receives a financial benefit. Unless a specific exemption applies, tax and National Insurance may therefore become due. The position has been less clear for sponsorship costs.
A Certificate of Sponsorship is an electronic record that the employer must assign before the worker can apply for their visa. The Immigration Skills Charge is another payment that certain sponsors must make when hiring through the Skilled Worker, Senior Worker, or Specialist Worker routes.
These charges arise from the employer’s responsibilities as a licensed sponsor. However, advisers report that HMRC is increasingly arguing that they still benefit the employee because they are essential to obtaining or extending the right to work in the UK.
The conflict between immigration and tax rules
The difficulty for employers is that Home Office and HMRC rules do not fit neatly together. Home Office guidance requires the sponsor to pay the Certificate of Sponsorship fee and Immigration Skills Charge. An employer must not recover these costs from the sponsored worker. Doing so can lead to the sponsor licence being revoked. That immigration obligation does not automatically make the payment tax-free.
An employer may therefore find itself in an uncomfortable position. It must pay the fee under the sponsorship rules, cannot pass it to the employee and may still face an argument from HMRC that the payment represents a taxable employment benefit. This is the central issue behind the current compliance risk.
Which immigration costs are affected?
The tax position depends on the type of expense and the circumstances in which it was paid. Personal visa application fees and the Immigration Health Surcharge are generally the clearest risk. When an employer covers them, they may be taxable unless a limited exemption applies.
The Certificate of Sponsorship fee and Immigration Skills Charge are the more controversial areas. They have commonly been treated as employer costs, but HMRC is now challenging that approach in some compliance reviews. Detailed public HMRC guidance addressing these two charges directly remains limited.
Priority processing, biometric appointments, immigration advice and costs for family members may also need separate consideration. Treating an entire relocation package as one expense can lead to incorrect reporting because different elements may have different tax consequences.
Can any exemptions apply?
Some costs connected with an employee moving to the UK may qualify for relief under the rules on business travel or relocation. The result depends on the individual facts, including the employee’s previous residence, the purpose of the journey and when the expense was incurred.
The reliefs are limited. A cost linked to an initial move to the UK may be treated differently from an expense incurred when an employee extends a visa while already living and working in the country. Employers should not assume that every immigration payment forms part of a tax-free relocation package.
What is the potential cost for employers?
If HMRC decides that an immigration expense is taxable, the employer may need to account for Income Tax and National Insurance. The correct method will depend on who was legally responsible for the bill, how it was paid and whether the benefit was processed through payroll. Some costs may need to be reported through payroll, while others may fall within the P11D and Class 1A National Insurance system. The Class 1A rate for the 2026/27 tax year is 15%.
The exposure can extend beyond the original charge. HMRC may also seek interest and penalties where a business has failed to report taxable benefits correctly. For employers that have sponsored several workers over a number of years, a retrospective review could create a substantial liability. The cost rises further when the employer agrees to cover the employee’s tax through a gross-up arrangement.
Why existing policies may no longer be sufficient
Many businesses divide immigration expenses into two simple categories: costs paid by the company and costs paid by the employee. That is no longer enough.
Employers need to understand who is legally responsible for each charge, whether the cost provides a personal benefit, which tax relief may apply and how the payment should be reported.
Clawback clauses also require care. An employer may be able to recover certain personal visa or relocation costs when an employee leaves early. It must not draft the clause so broadly that it includes sponsorship fees which Home Office guidance prohibits the business from passing to the worker.
What should UK employers do now?
Businesses that sponsor international employees should review their immigration expense policies before the next visa application or renewal. The review should separate visa fees, the Immigration Health Surcharge, sponsorship charges, professional fees and family costs. Payroll records should then be checked to confirm how each category has been treated.
Employers should also retain the documents supporting any exemption they intend to claim. This may include invoices, travel dates, evidence of the employee’s move to the UK and the reasoning behind the chosen tax treatment. Where the business has historically treated Certificate of Sponsorship fees or the Immigration Skills Charge as non-taxable, specialist employment tax advice may be needed to assess whether there is any past exposure.
This work will become increasingly important as HMRC moves towards wider real-time reporting of benefits in kind. Mandatory payrolling begins for certain benefits in April 2027 and is due to extend to most remaining benefits from April 2028.
A joined-up approach to immigration costs
Employer-funded immigration should no longer be managed only by the mobility or HR team. Sponsorship, payroll and tax treatment need to be considered together. The current uncertainty does not mean that every immigration expense will automatically be taxed. It does mean that employers should be able to explain their treatment of each payment and support it with appropriate records.
Goldman Solutions assists UK employers with sponsor licences, sponsored-worker applications and ongoing sponsor compliance. Where immigration expenses raise employment tax questions, we can help businesses review the sponsorship side of the arrangement and coordinate the process with tax advisers.
