Recruiting and retaining skilled workers from overseas has become part of workforce planning for many local authorities. Councils may meet a range of visa and immigration costs as part of that recruitment, but the employment tax treatment of these payments is not always straightforward. 

This is an area that finance, payroll and HR teams should review carefully. 

Recent Government responses to Parliamentary Questions have confirmed that employer payments towards immigration costs can potentially give rise to Income Tax and National Insurance liabilities. This includes payments connected with a Certificate of Sponsorship (CoS) and the Immigration Skills Charge (ISC). 

Whether tax is actually due depends on the circumstances and whether a relevant exemption applies. 

For local authorities sponsoring multiple overseas workers, an incorrect approach repeated across the workforce could create a significant PAYE and NIC exposure. 

Where can immigration sponsorship tax risks arise for councils? 

Local authorities may pay, reimburse or contribute towards a number of immigration-related costs, including: 

• Certificate of Sponsorship fees 

• Immigration Skills Charges 

• Skilled Worker visa application fees 

• Immigration Health Surcharge payments 

• priority or super-priority application fees 

• visa costs for an employee’s dependants 

• legal or immigration advice associated with an application 

These costs should not automatically receive the same employment tax treatment. 

Some arise because the council is acting as a licensed sponsor. Others are costs or liabilities associated more directly with the individual worker and their immigration application. 

That distinction can affect whether Income Tax and National Insurance are due. 

Why should local authorities review their approach now? 

Immigration costs can involve several teams within a council. 

HR may agree a recruitment package, finance may approve the expenditure and payroll may only become involved once a reimbursement or payment has already been made. 

Without a clear policy, different employees or service areas can therefore receive different treatment. 

For councils, the key questions include: 

• What immigration costs are we currently paying? 

• Which costs are paid directly by the council and which are reimbursed to employees? 

• Do HR, payroll and finance apply the same tax treatment? 

• Have we established whether an exemption applies before treating a payment as non-taxable? 

• Do we have records explaining the tax treatment adopted? 

• Could we evidence our reasoning if HMRC raised the issue during an employer compliance review? 

A review can also identify whether historic payments have created a potential PAYE or NIC liability before the issue is raised by HMRC. 

Certificate of Sponsorship and Immigration Skills Charge tax treatment 

Two areas attracting particular attention are the Certificate of Sponsorship fee and Immigration Skills Charge. 

These are closely connected with an employer’s responsibilities as a licensed sponsor. However, the Government has confirmed that this does not automatically determine their employment tax treatment. 

Councils should therefore avoid assuming that a payment is non-taxable simply because the employer is required to make it as part of the sponsorship process. 

The legislation, circumstances surrounding the payment and any available exemption all need to be considered. 

What should councils do? 

Local authorities sponsoring overseas workers should consider carrying out a structured review covering: 

1. every category of immigration and visa cost currently funded; 
2. how each payment is made; 
3. who is legally responsible for the cost; 
4. the employment tax treatment currently applied; 
5. the legislative basis for any exemption relied upon; 
6. consistency between employees and service areas; and 
7. the potential historic PAYE and NIC exposure if the existing treatment is incorrect. 

This also gives councils an opportunity to bring recruitment policies, payroll procedures and employment tax treatment into line. 

How PSTAX can help local authorities 

PSTAX has undertaken a detailed technical review of the employment tax legislation relevant to immigration sponsorship costs. 

Our Employment Taxes team can help councils: 

• assess the tax treatment of individual sponsorship and immigration costs; 

• review Certificate of Sponsorship and Immigration Skills Charge payments; 

• identify potential PAYE and National Insurance liabilities; 

• review recruitment, reimbursement and relocation policies; 

• assess historic treatment and potential exposure; 

• establish a consistent approach across HR, payroll and finance; and 

• support discussions with HMRC where required. 

Does your council sponsor overseas workers? 

If your local authority pays immigration or visa costs for employees, reviewing the employment tax position now can help identify issues before they become part of an HMRC compliance review. 

Speak to the PSTAX Employment Taxes team about an immigration sponsorship costs review. 

Contact the team Employment Taxes support for local authorities Contact Alex Gardner 

Frequently asked questions 

Are Certificate of Sponsorship fees taxable for council employees? 

Potentially. The Government has confirmed that employer-paid Certificate of Sponsorship costs could be liable to Income Tax. The correct treatment depends on the circumstances and whether an employment tax exemption applies. 

Is the Immigration Skills Charge taxable? 

The Immigration Skills Charge is paid as part of the sponsorship process, but this does not by itself determine its employment tax treatment. Local authorities should consider the relevant legislation and circumstances before deciding whether a payment is taxable. 

Are visa fees paid by a local authority taxable? 

They can be. The tax position can depend on the type of visa cost, who is responsible for paying it, how the council meets the cost and whether an exemption is available.