Visa costs, HMRC and benefits in kind: what sponsors need to check

What sponsoring someone actually costs

A three year Skilled Worker sponsorship, for a medium or large employer, costs £525 for the certificate and £3,960 in Immigration Skills Charge before anyone has filled in an application form. For a small or charitable sponsor the skills charge drops to £1,440. On top of that sits the worker’s own application fee and the Immigration Health Surcharge at £1,035 per person per year, which plenty of employers offer to cover as part of the package.

The businesses I work with tend to book all of it as a cost of hiring and move on, which is reasonable enough. The question that does not usually get asked is whether any of it counts as pay.

What HMRC used to accept, and what changed

Two of those costs are legally yours. The CoS fee and the Immigration Skills Charge cannot be recovered from the worker, at all, in any form. That prohibition has teeth: pass on the skills charge and you are looking at a sponsor licence problem, not just an awkward conversation.

So the long-standing position was straightforward: if the employer must bear a cost and the employee can never bear it, the cost is incurred for the business, and no benefit in kind arises. That is how most sponsors have reported it (or rather, not reported it) for years.

Over the past year HMRC has started arguing the opposite in employer compliance reviews. Its reasoning is that these costs are what gets the worker their right to work, so they are provided by reason of the employment and are taxable in the employee’s hands. HMRC also says this is not a change of position, which is an interesting way to describe something nobody was told about.

The Immigration Health Surcharge is the clearer risk

The IHS is different because it can legitimately be paid by the individual, paid by you, or recovered from them under a loan or clawback arrangement. There is a real choice, which is exactly why HMRC takes an interest.

The split that matters is where the person is standing when they apply.

Pay the surcharge as part of moving someone to the UK and it can be treated as a relocation cost, on the same footing as flights. Qualifying relocation costs are exempt up to £8,000 per move. That view goes back to HMRC’s expat tax forum in 2015 and has not been withdrawn.

Pay it for an extension when the person is already here and that logic falls away, because nobody is relocating. You are paying to maintain someone’s immigration status while they carry on living in Manchester, and HMRC treats that as a taxable benefit.

There is no dedicated published guidance saying so in plain terms, which is part of the problem. You are asked to work it out from a decade-old forum minute and an exemption written for removal vans.

Worth knowing too: the £8,000 is not per year and not per cost. It covers the whole qualifying relocation, so if you are also paying for flights, temporary accommodation and shipping, the surcharge may be what tips the total over, and the excess is taxable.

What it costs to get it wrong

An unreported benefit in kind means unpaid income tax and Class 1A National Insurance, plus interest, plus a penalty scaled to your behaviour. A genuine mistake counts as “careless”, while getting to “deliberate” usually takes ignoring professional advice or something closer to dishonesty.

Careless matters because of how far back HMRC can reach: four closed tax years for income tax, six years for National Insurance. That is a long time to have been quietly covering extension fees for a handful of engineers.

If you come forward yourself rather than waiting to be found, penalties for careless behaviour run between 0% and 30% of the unpaid tax. If HMRC prompts you first, the range gets worse.

One timing point goes straight in your calendar. If the employee makes good the cost, meaning they repay it to you, by 6 July following the end of the tax year in which you paid it, the benefit is removed for both income tax and Class 1A. Miss that date and you can still recover the money commercially, but the tax charge stays. Partial repayment before the deadline reduces the charge; partial repayment after it does nothing.

If you have not been reporting it

1. Work out the actual exposure first. Pull every immigration cost you have paid or reimbursed in the last four years and split it three ways: employer-only charges, initial relocations, in-country extensions. Most sponsors have no single place this lives, because immigration sits with HR or an external adviser and the payments go through finance. That gap is the whole reason it goes unnoticed.
2. Talk to your accountant about an unprompted disclosure and a PSA. A PAYE Settlement Agreement lets you settle the income tax and Class 1B NIC centrally, so nothing appears on individual P11Ds and no employee gets a surprise tax code change. For a benefit like this, where the amounts are irregular and the employee had no say in them, it is the cleaner mechanism. A PSA has to be agreed with HMRC and the categories have to be right, so it is not a same-week fix.
3. Fix the process going forward. Decide who bears the IHS on extensions, write it into the offer or a separate immigration costs agreement, and if you are recovering it, structure the clawback so the money is back with you before 6 July following the tax year. If you are covering it as a benefit, budget for the tax as well as the surcharge.

Why it is coming up now

The Home Office got bulk access to HMRC payroll data in April 2026. Salary compliance for sponsored workers is now checked per pay period rather than averaged across the year, and discrepancies between what a payslip says and what the CoS says get flagged automatically. Sponsor licence revocations went from around 1,100 in 2024 to roughly 3,000 in 2025.

None of that is about benefits in kind directly. It matters because the two departments are now reading the same file. If HMRC’s broader view of visa costs holds, and historic non-reporting surfaces through a compliance review, you are not only dealing with a tax bill. You are dealing with it as a sponsor whose records are already under a microscope.

If you sponsor anyone and you have never checked how those costs were reported, that is a half-day exercise, not a project. Do it before someone else does it for you.

Common questions

Can we ask the employee to pay the Immigration Skills Charge instead?

No. The skills charge and the CoS fee must be borne by the sponsor and cannot be passed on or recouped in any form, including through a clawback or a salary sacrifice. Doing it is a sponsor licence risk, not a tax one.

Does this apply if the worker paid their own visa fees?

The employer-only charges still sit with you either way, so HMRC’s argument about them is unaffected. The IHS point only bites where you paid it or reimbursed it. If the worker paid it themselves and you never reimbursed them, there is no benefit to report.

What if we already run a PSA?

Check the agreed categories rather than assuming it stretches. A PSA only covers what HMRC has agreed it covers, so an existing one for staff entertaining will not quietly absorb immigration costs.

Is the IHS taxable when we pay it for someone’s dependants?

Same test. Paid as part of a qualifying relocation to the UK, it can fall inside the £8,000 exemption alongside the main applicant’s. Paid on an in-country extension, treat it the same way as the employee’s own.

How far back do we need to look?

Four closed tax years for income tax and six for National Insurance where the behaviour is careless. Start with extensions, since those are the clearest exposure, then look at what you have covered on initial moves and whether the total went over £8,000.

I am a People consultant, not a tax adviser, and this is not tax advice. The tax treatment here is genuinely contested at the minute, so take your numbers to your accountant before you file anything. What I can help with is the bit underneath it: who owns immigration costs in your business, what your offer letters and clawback agreements actually say, and whether HR, payroll and finance are looking at the same picture.

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