Immigration Skills Charge Tax Exemption 2026: Major UK Budget Relief for Employers. Employers’ payments of the Immigration Skills Charge (ISC) and Certificate-of-Sponsorship (CoS) fees would no longer be recognised as a taxable benefit in kind for employees.
The plan, confirmed in HMRC’s Overview of Tax Legislation and Rates (OOTLAR), will be legislated for in Finance Bill 2026-27 and is effective for payments made on or after 28 October 2026.
Currently if a company pays the ISC (£1,000 per sponsored worker per year for most major firms) or the £239 CoS fee, HMRC may treat the cost as a benefit to the worker which would attract Pay-As-You-Earn tax and National Insurance on the grossed-up amount.
The new exemption removes that liability and aligns the tax treatment with visa-application fees (which are already tax-free), while lowering administrative complexity.
For HR and finance departments, the adjustment streamlines payroll reporting and slightly cuts the total sponsorship cost.
A sponsoring employer for a five-year Skilled Worker pays up to £5,000 ISC, which as a benefit can add over £2,500 gross-up charges for a higher rate taxpayer.
Going forward only the top Home Office charges affect the budget.
The proposal also cures a longstanding issue which has deterred some corporations from paying for sponsorship.
By emphasising tax neutrality, the government intends to encourage more firms, especially SMEs, to hire international talent legitimately rather than resort to gig-economy arrangements outside the sponsorship system.
Sponsors should be aware that the ISC itself is still payable and that any immigration-related reimbursements, such as relocation allowances or private medical insurance, are still subject to standard benefit-in-kind requirements.
Payroll software will need to be updated after the Finance Bill 2026-27 receives Royal Assent (anticipated in Spring 2027).