Visa Expenses: HMRC compliance focus and employer implications

Visa‑related costs can arise in a wide range of scenarios, including:

• Overseas recruitment and onboarding;
• International assignments and relocations;
• Visa renewals for existing UK‑based employees; and
• Business‑critical extensions where continued right to work is required.

From a tax perspective, where such costs are met by an employer, the treatment broadly depends on when the cost is incurred, why it is incurred and the tax residency status of the employee in question.

Certain visa costs incurred as part of an employee and their family’s travel to the UK may, in limited circumstances, qualify for relief as ‘travel facilities’ under special provisions within ITEPA 2003. Outside this relatively narrow relief however, visa expenses have generally been viewed as giving rise to a taxable benefit where they are met on behalf of the employee. HMRC have previously provided limited commentary in their December 2018 Employer Bulletin.

Historically, however, an important distinction has been drawn between costs that benefit the employee directly (such as visa application fees and the Immigration Health Surcharge) and business costs which derive from obligations imposed solely on the employer.

Certificates of Sponsorship and the Immigration Skills Charge

We have recently seen a significant shift in HMRC’s approach to Certificates of Sponsorship (CoS) and the Immigration Skills Charge (ISC).

For many years, these costs were widely regarded as non‑taxable on the basis that:

• They are associated with employer-specific obligations under the UK’s immigration regime; and
• The UK’s Home Office rules explicitly prohibit employers from passing these costs on to employees.

Until recently, this view had not been challenged by HMRC.

However, HMRC seem to now be adopting a different approach. In a number of cases we have seen HMRC contend that CoS and ISC costs fall within the very broad definition of an ‘employment‑related benefit’ in section 201 ITEPA 2003, arguing that the payment of these costs is intrinsic to enabling the employee to obtain or renew their right to work in the UK and the costs are therefore associated with a ‘benefit or facility of any kind’ which is provided ‘by reason of the employment’.

This represents a significant departure from historic practice and is now being regularly raised in employer compliance enquiries, with HMRC seeking grossed-up tax and NIC on CoS, ISC costs and, in some cases, immigration adviser fees.

In practice, visa expenses are not always managed by Tax or Global Mobility teams. Immigration or Employment Law functions often oversee visa applications, while Finance teams may process payments without visibility of the underlying tax risk. This fragmentation increases the likelihood that visa costs are treated inconsistently, or that historic assumptions go unchallenged until an HMRC enquiry arises.

Whilst the position remains oblique in the absence of formal guidance, HMRC’s current compliance activity presents a risk for employers of unexpected tax and NIC liabilities on a retrospective basis, together with interest and the possibility of penalties. Where employers choose to protect employees from the tax charge (for example, through gross‑up arrangements), the cost can escalate significantly.

HMRC’s approach to the taxation of the ISC and CoS continues to generate discussion, with a number of points under consideration. The principal areas of focus are as follows:

• Employer obligations: The CoS and ISC are statutory costs that employers are required to bear and cannot legally be passed on to employees. This raises questions about their classification as employee benefits;
• Departure from established practice: HMRC’s position regarding CoS and ISC taxation has only recently emerged as part of their compliance activity, representing a change from previous widely accepted treatment and occurring without any specific HMRC guidance;
• Broader implications: If HMRC’s reasoning were to be applied more widely, it could potentially affect the taxation of other employer-incurred costs that have traditionally been considered non-taxable, leading to additional costs for employers; and
• Limited guidance: HMRC’s published guidance on the tax treatment of visa expenses does not currently reference the CoS or ISC costs. This contributes to ongoing uncertainty, highlighting the need for clearer direction.

Despite these considerations, we are seeing HMRC maintaining that these costs are taxable benefits unless specific tax reliefs apply. Any challenge to this view would generally need to follow a formal process such as case review, Alternative Dispute Resolution or Tribunal proceedings.

Practical next steps and best practice include:

• Mapping visa costs: Identify where visa expenses arise across the organisation and who is responsible for approving and paying them;
• Reviewing historic treatment: Assess how different categories of visa costs have been treated for tax and NIC purposes. Quantify any potential liabilities, including grossed‑up tax implications where appropriate;
• Engagement strategy: Consider how to engage with HMRC, either in open enquiries or where an unprompted voluntary disclosure is under consideration; and
• Governance and controls: Ensure future visa costs are reviewed through a consistent tax lens, regardless of which function incurs them.

KPMG is supporting employers across a range of sectors to:

• Review historic and current treatment of visa expenses;
• Support responses to HMRC enquiries and disputes; and
• Design practical governance frameworks that reflect how visa costs arise in real‑world organisations.

As HMRC’s position continues to evolve, proactive review and early action remain key to managing both cost and risk.For further information, please get in touch with the authors or your usual KPMG contact in our Global Mobility or Employment Solutions teams.

For further information please contact:

• Mike Lavan
• Nicola Sard