Most UK employers who sponsor overseas workers need to pay the immigration skills charge. For UK business owners, who historically hired EU workers because of the UK skills gap, the requirement to pay the immigration skills charge has come as an unwelcome recruitment overhead. With many UK employers applying for their first sponsor licence and finding that there is a need to comply with business immigration law. Here’s our guide for employers on the immigration skills charge and what you need to know.
- What is the immigration skills charge?
- The rationale for the immigration skills charge
- Hiring EU workers and the immigration skills charge
- The law and the immigration skills charge
- How much is the immigration skills charge?
- Can an employer pass the immigration skills charge on to the sponsored employee?
- Can an employer get a refund of the immigration skills charge?
- When does an employer get an immigration skills charge refund?
- When is the immigration skills charge payable?
- Are there any exemptions to the requirement to pay the immigration skills charge?
- Does an employer have to pay the immigration skills charge for dependents of the sponsored worker?
- What happens if an employer does not pay the immigration skills charge?
What is the immigration skills charge?
On the 6 April 2017 the Home Office introduced the immigration skills charge (ISC).
The immigration skills charge is payable by you, an employer of a Tier 2 worker who has been assigned a certificate of sponsorship under your sponsor licence. Tier 2 workers include those recruited on the skilled worker visa and the intra company transfer visa.
It is important to understand the rationale behind the ISC and the cost to your business so you can weigh up the costs of training schemes and apprenticeships (assuming you can find workers to recruit from within the UK) against the cost of applying for a Home Office issued sponsor licence, managing the sponsor licence, and recruiting overseas workers as employees.
For information on sponsor licences read our guide for employers on the sponsor licence.
For information on sponsoring overseas workers read our article on how to sponsor overseas workers as employees.
The rationale for the immigration skills charge
The ISC was introduced to address the UK skills gap. The charge is a deliberate disincentive to UK employers to hire overseas workers. The rationale behind the ISC is that a UK business owner will invest the money that their business would overwise spend on recruiting a skilled migrant worker and paying the immigration skills charge by recruiting from within the UK and spending the money on training or apprenticeship schemes to meet the UK skills gap. This approach presupposes that there are suitable UK job candidates who could undertake training or that the business can wait for non-experienced workers to gain the degree of skill and experience an employer requires of their workers to meet commercial contracts or business expansion plans.
As the rationale behind the ISC is to invest in UK based workers the money raised through the immigration skills charge is syphoned off to the Department of Education to help invest in UK worker skills training to address the UK skills gap.
Hiring EU workers and the immigration skills charge
Until the end of the Brexit transition period and the end of free movement for EU nationals on the 31 December 2020, UK business owners who hired EU citizens didn’t need a sponsor licence to employ EU workers or to pay the immigration skills charge.
Since the 31 December 2020 UK employers have had to check if they will need to pay the ISC if they recruit an EU national. This is an important point for HR directors and those managing recruitment budgets.
If an EU worker was living and working in the UK before the 31 December 2020 and applied for pre-settled status or settled status under the EU Settlement Scheme, the worker is not subject to UK immigration controls. Therefore, sponsorship isn’t required and the immigration skills charge isn’t payable by the employer.
In some sectors of the UK economy, such as hospitality or the construction industry, some UK businesses are reliant on a workforce that consists of twenty to thirty percent EU workers. If those EU workers leave their employment the cost of replacing them will rise significantly unless the company can employ someone who isn’t subject to immigration control, namely a person who:
- Is a British citizen.
- Is settled in the UK (indefinite leave to remain).
- Has pre-settled status or settled status under the EU Settlement Scheme.
- Is otherwise not subject to immigration control or who has secured a visa that enables them to work in the UK without requiring a sponsoring employer or payment of the ISC. For example, the holder of a graduate visa.
Forward planning UK employers are taking employment law and business immigration law advice on how to plan for the eventual reduction of existing EU national employees as that will inevitably occur through workers reaching retirement age, finding a new job with a UK employer, or returning to their home country.
The law and the immigration skills charge
The immigration skills charge was brought into law in the Immigration Act 2016 and introduced in April 2017 with the Immigration Skills Charge Regulations 2017.
The ISC rules were amended in the Immigration Skills Charge (Amendment) Regulations 2020. The rationale behind the 2020 amendment was to include the skilled worker visa applicant as the skilled worker visa replaced the Tier 2 (General) visa.
How much is the immigration skills charge?
The cost of the ISC is an important recruitment consideration when your business is heavily reliant on skilled migrant workers. The cost of the ISC will depend on three factors:
- The nature and size of your business.
- The length of the sponsored worker’s visa.
- If the job the overseas worker is being recruited for is within an exemption to payment of the ISC.
The amount that you will be required to pay for the ISC for your new employee (or your employee who is extending their Tier 2 visa) will depend on whether your business is classed by the government as a ‘small’ or a ‘medium to large’ business.
The definition of what is meant by a ‘small’ business or a charity for the purposes of the immigration skills charge is:
- A company subject to the small company regime under section 381 of the Companies Act 2006, or
- A charity within the meaning of section 1 of the Charities Act 2011 or section 1 of the Charities Act (Northern Ireland) 2008, or a body entered in the Scottish Charity Register, or
- A person who employs no more than 50 employees.
The 2006 Companies Act says at least two of the following criteria must apply for a business to be classed as a small company under the Act:
- The company has a turnover of no more than £10.2 million.
- The company has a balance sheet total of no more than £5.1 million.
- The company has no more than 50 employees.
The detailed regulations can be viewed on the government legislation website.
If your organisation doesn’t fall into the definition of a ‘small’ employer or a charity then you will need to pay the higher ISC fee payable by medium or large size companies.
The sponsor licence sponsor management system (SMS) should calculate the ISC for you when you allocate a certificate of sponsorship to a successful overseas job candidate so that they can apply to the Home Office for their work visa. However, the government has also provided an online immigration skills charge calculator that can also be used.
The immigration skills charge calculation is also summarised in the table below:
|Length of skilled worker visa or intra company transfer visa||Small size employer or charitable sponsor||Medium to large size sponsoring employer|
|First twelve months of visa||£364||£1,000|
|Each additional six months of the visa||£182||£500|
|Maximum potential immigration skills charge to sponsor a worker for a five-year period||£1,820||£5,000|
The ISC calculator can be helpful to calculate the charge when the visa length is non-standard. For example, if you want to sponsor a Tier 2 worker for twenty months you will need to pay the ISC figure for two years as the Immigration Rules say that the fee is not apportioned. So, if your sponsored worker will be in the UK for twenty months (more than twelve months but less than twenty-four months) you must pay the full immigration skills charge for two years.
With the ISC, an employer does not pay the figure annually. Instead, you are expected to find the full fee when you request the certificate of sponsorship to sponsor the overseas worker. That means, if you are classified as a large employer and your skilled worker visa applicant is applying for a five-year visa, the ISC will be £5,000. That sort of sum can significantly increase recruitment costs, especially where you need to recruit many skilled migrant workers on skilled worker visas.
Can an employer pass the immigration skills charge on to the sponsored employee?
Many small and large employers ask if they can pass the immigration skills charge onto their sponsored employees to reduce their recruitment overheads. The Immigration Rules say that you cannot ask a sponsored employee to repay the ISC to your business either as a lump sum payment prior to or during their employment with you. Nor can you deduct a set amount from your sponsored employee’s salary to reimburse the company for payment of the ISC.
Can an employer get a refund of the immigration skills charge?
There are some circumstances that would warrant you receiving a refund on the immigration skills charge. That is important as the rules say the ISC is payable before the Home Office consider the overseas workers application for an intra company transfer visa or skilled worker visa and the full amount of the ISC must be paid upfront.
A refund provides a sponsoring employer with a solution if the recruit is either being refused a Tier 2 visa by the Home Office or leaves their sponsored employment prior to the expiry of their visa. The ISC can be refunded in part or in full.
You will be entitled to a full refund of the ISC if:
- The Tier 2 visa application is refused by the Home Office.
- Your new employee decides to withdraw their Tier 2 visa application.
- Your new sponsored worker decides that, despite the grant of the Tier 2 visa, they will not take up employment with you.
You will be entitled to a partial refund of the ISC if:
- Your employee terminates their contract of employment with you before the expiry of their Tier 2 visa. For example, your sponsored employee could choose to return home or find a new job with a different sponsor
- You terminate the contract of employment with the sponsored employee before the expiry of the certificate of sponsorship and their visa. For example, as a result of poor performance.
There are specific rules about the circumstances in which you can secure a full or partial refund of the ISC and they are found on the government website. Alternatively, if you don’t want to pour through the very detailed sponsor licence guidance, a business immigration solicitor will be able to advise you on the availability of a full or partial refund.
When does an employer get an immigration skills charge refund?
For cash flow purposes, most employers want to know when they will get any immigration skills charge refund. If you are entitled to a full or partial refund the Home Office will pay the amount back into the account the ISC was paid from.
Normally the Home Office will refund the full or partial ISC within ninety days of:
- You informing the Home Office that your sponsored worker did not come to work for you.
- The expiry date on the certificate of sponsorship provided that the recruit did not use the certificate of sponsorship to apply for a Tier 2 visa.
- The date the Tier 2 visa application was withdrawn by the recruit.
- The date of expiry of the Tier 2 visa applicant’s ability to apply for an administrative review of the Home Office decision to refuse the Tier 2 visa application. If an administrative review is requested by the visa applicant you will get a refund within ninety days of the dismissal of the administrative review and refusal of the visa application.
When is the immigration skills charge payable?
Some UK employers assume the ISC is only payable when a Tier 2 worker makes their visa application. That is not correct. The immigration skills charge is payable when you allocate the certificate of sponsorship to the proposed employee through use of your online sponsor management system.
Your certificate of sponsorship for your new employee will only be valid once the ISC has been paid. Furthermore, the Tier 2 visa will only be granted by the Home Office once the ICS has been paid in full by you.
Are there any exemptions to the requirement to pay the immigration skills charge?
There are some exemptions to the immigration skills charge, namely:
- Students switching from a student visa to a skilled worker visa.
- The job applicant is applying for a visa from outside the UK and the visa will last for less than six months, for example on an intra company transfer visa.
- Job applicants applying for the intra-company transfer graduate trainee visa.
- Workers with specific standard occupation codes:
- chemical scientists (2111)
- biological scientists and biochemists (2112)
- physical scientists (2113)
- social and humanities scientists (2114)
- natural and social science professionals not elsewhere classified (2119)
- research and development managers (2150)
- higher education teaching professionals (2311)
- sports players (3441)
- sports coaches, instructors, or officials (3442)
- clergy (2444)
The easiest way to check if the ISC is payable is to ask your business immigration solicitor or complete the government online tool.
Does an employer have to pay the immigration skills charge for dependents of the sponsored worker?
If your Tier 2 sponsored worker decides to bring family members with them to the UK (or is subsequently joined in the UK by their family members) you will not be expected to pay the ISC for each family member.
What happens if an employer does not pay the immigration skills charge?
Failure to pay the immigration skills charge may delay or invalidate your certificate of sponsorship, or the following may happen:
- Your recruit and Tier 2 visa applicant will have their application refused by the Home Office. This is because the certificate of sponsorship you assign to your new worker is invalid unless the ISC is paid. Generally, if you don’t pay the ISC in full within ten working days of the first Home Office reminder to make the full ISC payment then your sponsored worker’s visa application will be refused. This may mean that you must start your recruitment process again.
- If you try to avoid payment or attempt to pass responsibility for payment of the ISC to your sponsored employee the Home Office could suspend or revoke your sponsor licence. This could have serious consequences for your business. Our guide on what to do if your sponsor licence is revoked or suspended will help if you find yourself in this situation.