The immigration health surcharge (IHS) was introduced in April 2015 for all non-European Economic Area (non-EEA) nationals who are coming to live in the UK for longer than 6 months. The IHS is required in order to gain access to the healthcare by the National Health Service (NHS) in the UK.
The current cost of the IHS is £200 per year and £150 per year for students (subject to exceptions), which is payable when an individual submits their visa application online. As this is an upfront cost, employers regularly consider paying the IHS on behalf of the individual when they recruit non-EEA nationals. This is often the case when recruiting individuals on a Tier 2 (General) visa as employers do sometimes cover the cost of the visa application in any event. Where the employer pays the IHS on the individual’s behalf, it is important to consider whether or not this is subject to income tax.
Applications made outside of the UK
If the visa application is made whilst the individual is outside the UK, and the IHS is paid as part of this process, income tax will not be payable as long the individual is non-UK domiciled and can satisfy one of the following conditions:
- that they were not resident in the UK in either of the 2 tax years which ended before the tax year in which they came to the UK to work
- that they have not been in the UK, for any reason, at any time in the 2 years ending on the day immediately before the individual came to the UK to work
In such circumstances payment of the IHS will be viewed by HMRC as part of the travel costs relating to the individual’s travel to the UK, which qualifies for a specific tax exemption where the above conditions are satisfied
Applications made inside of the UK
If the visa application is made whilst the individual is inside the UK, income tax and Class 1 national insurance contributions will need to be paid if the employer pays the IHS on behalf of the employee. The payments will need to be returned to HM Revenue and Customs on a P11D form.
In these circumstances, as the individual is already inside the UK, HMRC do not accept that payment of the IHS represents a travel cost of the individual travelling to the UK, and therefore the specific tax exemption will not apply.
Accordingly, employers should note that payment of the IHS will be fully taxable in the UK (and subject to national insurance) if it is paid by the employer as part of visa extension applications made inside of the UK.
Employers should be alert to the income tax and national insurance consequences of paying the IHS on behalf of non-EEA nationals. This is particularly important to take into consideration when negotiating the package on which the non-EEA national will be recruited. Employers should also be alert to the fact that there will be no tax relief available in respect of the IHS when an employee extends their visa inside of the UK.