Which immigration costs are taxable as benefits in kind?
When a business sponsors a worker under one of the UK’s work routes, it incurs several costs payable to the Home Office. Certificates of Sponsorship (CoS) and the Immigration Skills Charge (ISC) aren’t taxable as benefits in kind (BIK), however the Immigration Health Surcharge (IHS) can be for in-country applications. Further details are set out below.
CoS and ISC
A CoS is the digital record a sponsor assigns to a worker before they can apply for permission to work in the UK. It confirms the details of the sponsored worker and the job they will do.
The ISC is an additional charge levied on sponsors for non-exempt Skilled Worker and Senior or Specialist Worker sponsorships, payable regardless of whether the application is for entry clearance or permission to stay in the UK.
The CoS fee and ISC must always be paid by the sponsoring employer. These costs can’t be passed on to or reimbursed by the worker. Because (i) these costs are incurred wholly and exclusively for the purposes of the business, and (ii) the worker can never bear them, these should, in our view, be tax-deductible for the employer and should give rise to no benefit in kind (BIK) for the employee. That is a position that many employers have taken in the past.
We are aware that recently, HMRC has been challenging that position and arguing that all costs incurred in obtaining a visa should treated as a BIK and taxed accordingly. We disagree with this new approach, but the increased scrutiny and activity in recent HMRC Employer Compliance Reviews means that it’s more important than ever that employers review their current approach to valuing and reporting visa costs.
The Immigration Health Surcharge
The Immigration Health Surcharge (IHS) is different. It’s a charge that allows non-exempt individuals with limited immigration permission to access the NHS without further cost to them at the point of use.
Unlike the CoS fee and ISC, the IHS can be paid by the individual directly, paid by the employer on a worker’s behalf, or recouped from a worker under a loan or clawback arrangement. Where the employer pays for the IHS, HMRC’s position is that this may be reportable as a taxable BIK, at least in certain circumstances.
IHS – an exemption for relocations, but not for in-country applications
When the predecessor NHS surcharge was introduced in 2015, HMRC’s Joint Forum on Expatriate Tax and National Insurance Contributions addressed the point directly. In the minutes of its meeting on 8 July 2015, the Forum published its view that the surcharge would fall within an existing exemption where the payment was ’attached to visa costs’ – that is, paid in connection with the individual’s initial relocation to the UK.
On that basis, the surcharge could be ‘regarded as a travel facility in the same manner as airfares’, and so could be treated as a qualifying relocation cost (such costs are exempt from taxation up to £8,000).
The exemption doesn’t extend to extension applications made once the individual is already in the UK. For in-country applications, a taxable BIK does arise where the employer pays for the IHS as the surcharge isn’t ‘attached to’ the worker’s relocation; it’s a cost of maintaining their immigration status while already resident.
There’s no other official published HMRC guidance dealing squarely with this point. That creates uncertainty for employers, stuck between the historically acceptable position, and HMRC’s new position which seems at odds with general principles.
Consequences where a BIK arises
Taxable BIKs should be reported on an employee’s form P11D or via a PAYE Settlement Agreement (“PSA”) where an appropriate category has been agreed with HMRC. Failure to do so exposes the employer to interest and behaviour-based penalties on unpaid tax.
A good faith failure to report is likely to be categorised by HMRC as ’careless’. The next stage, ‘deliberate’, typically requires disregard of professional advice or an element of dishonesty.
Where a disclosure to HMRC is unprompted (i.e. the employer comes forward before HMRC raises it), penalties for careless behaviour are limited to 0–30% of the unpaid tax.
One timing rule is worth noting. If amounts are recouped from the employee by 22 July following the end of the tax year in which they were paid, no benefit in kind should arise at all. If recouped after that date, the income tax may still be recovered, but no NIC is recoverable.
Remedial options where IHS hasn’t been reported as a BIK
For employers who haven’t previously reported the IHS as a taxable benefit for in-country applications, there are practical routes to manage the position.
- Make an unprompted disclosure to HMRC. This secures access to the lower end of the penalty scale. Please note that in the event of a failure to report via P11D, where the error is 'careless', HMRC would have the power to go back six years for National Insurance contributions and four closed tax years for income tax.
- Consider putting in place a PSA. This allows the employer to settle the income tax and Class 1B NICs due on the benefit on behalf of affected employees, rather than reporting individually via P11D. It’s administratively simpler, avoids employee-level reporting, and is a well-established mechanism for dealing with benefits of this kind.
- Review arrangements going forward. If your business pays or reimburses the IHS for in-country applications, consider whether a loan or clawback arrangement could be structured to ensure recovery of costs by 22 July following the end of the relevant tax year.
Time to take stock
Data-sharing between the Home Office and HMRC has expanded significantly since Spring 2026. This raises the stakes of non-compliance (or what HMRC consider to be non-compliance…). If historic non-reporting immigration costs as BIKs surfaces through that data-sharing, and HMRC’s more aggressive approach in respect of CoS and ISC fees is ultimately considered to be correct, it could also have implications for sponsor licence compliance.
If you’d like our team to review your arrangements or discuss next steps, we’re happy to help.
