Visa & Immigration Costs: Tax Implications for Employers

Employer-paid immigration costs can have complex tax implications and should be reviewed carefully.

Types of visa and immigration costs

When an employee comes to the UK to work, the main costs typically include:

• Visa application fee
• Immigration Health Surcharge (IHS)
• Certificate of Sponsorship (CoS)
• Immigration Skills Charge (ISC)

Where these costs are paid or reimbursed by the employer, the tax treatment can vary.

The appropriate treatment will often depend on:

• when the cost was incurred;
• the reason for incurring the cost; and
• the tax residence position of the individual.

As a result, the tax treatment requires detailed analysis and may not be consistent across all employees within the same organisation.

Background

Visa application fees and the Immigration Health Surcharge are often incurred as part of the employee’s immigration application.

Where such costs are incurred as part of the employee’s initial move to the UK, relief may be available if the costs are required for a qualifying journey. These are broadly the same rules that provide exemptions from tax for certain travel-related costs and will usually prevent the costs from being taxable.

For visa renewals or extensions, where the employee is already in the UK, the special foreign travel rules are less likely to apply because the cost will often not relate to a qualifying journey. HMRC’s view is that these costs are not incurred in the performance of the employee’s duties.

What has changed

Recent changes to the Foreign Income and Gains rules, effective from 6 April 2025, mean that the foreign travel rules have been updated.

Previously, the rules applied by reference to an individual’s domicile. They now apply by reference to whether the individual is a “qualifying new resident”.

A qualifying new resident is an individual who is within their first four years of UK tax residence and who has not been UK tax resident in any of the ten tax years before moving to the UK.

In addition, HMRC appears to have changed its approach to certain related employer costs.

The Certificate of Sponsorship and Immigration Skills Charge are obligations of the employer. Immigration law also states that these costs cannot be passed on to the employee.

Historically, the expectation was that these employer costs would not create a taxable benefit for the employee.

However, HMRC’s view, based on recent correspondence, is that these costs are taxable benefits. HMRC also suggests that this does not represent a change in its position.

HMRC’s reasoning is that, where an employer pays these costs in relation to the renewal of an employee’s visa, the payment is an employment-related benefit chargeable to tax because it is provided by reason of the employment.

The combination of the changes to the foreign travel rules and HMRC’s clarification of its position has created an unsatisfactory position that needs to be managed with care.

Reporting these costs

The reporting treatment for these costs depends on how they have been paid.

To avoid employees bearing tax on what may appear to be an illogical taxable benefit, employers often consider meeting the tax through a PAYE Settlement Agreement (PSA). A PSA allows the employer to cover tax that would otherwise fall on the employee. PSAs must be agreed with HMRC by 5 July following the end of the relevant tax year and filed no later than 22 October. Please see our PSA quick guide for more details.

Note: The mandatory payrolling of benefits-in-kind is expected to be introduced on a phased basis from April 2027. It is likely that visa costs will need to be payrolled, rather than reported on a P11D, from April 2028, although further HMRC guidance is expected.

Next steps

We recommend reviewing your visa and related immigration costs carefully, as this is an area that has come under increased HMRC scrutiny alongside the growth in globally mobile employees.

If you would like assistance with understanding the tax implications of these costs for your employees, please email p11d@ouryclark.com for further advice.