As visa sponsorship rules tighten and immigration salary thresholds affect whether individuals can be sponsored to work in the UK, employers face two related risks. Paying immigration costs may create an unexpected benefit-in-kind ("BIK") tax liability, and may create or expose differences in pay between employees performing the same role.

A recent Employment Tribunal case highlights the latter issue. Taken alongside HMRC’s increased scrutiny of employer-funded visa expenses, it underlines the need for employers to consider immigration, tax and employment law together.

Key points for employers

• Employer-funded immigration costs may be taxable. HMRC is advancing a broader interpretation of the BIK rules and seeking tax and National Insurance contributions where certain visa and sponsorship expenses have been met by employers on employees’ behalf.
• Each cost must be considered separately. The tax treatment may depend on what was paid, who was legally liable, who benefited, the employee’s circumstances and whether an exemption or deduction is available. For example, employer-specific sponsorship costs such as the Certificate of Sponsorship ("CoS") fee and the Immigration Skills Charge ("ISC") must be borne by the sponsor and cannot be passed on to the worker, supporting the argument that they are the employer’s own regulatory costs rather than benefits provided to the employee. HMRC may, however, rely on the broad employment-related benefits rules to argue that the employee...

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