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EU Settlement Scheme: Possible tax burden where employers pay application fee on behalf of employees

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As you are probably already aware, EU nationals who want to remain in the UK post Brexit will need to apply for residence documentation under the EU Settlement Scheme. Application fees of £65 for adults and £32.50 for children (under the age of 16) will be charged, meaning the cost of applying for a family of four will be close to £200.

Many employers are considering reimbursing employees, with some particularly generous employers also prepared to reimburse application fees for an employee’s family members. The motivation for doing so is usually one or both of the following:

  • Wanting to make the process as pain free as possible for EU nationals so that any risk of them leaving is minimised, especially given that it will become increasingly difficult to replace EU workers once free movement ends.
  • Following normal practice for payment of Home Office fees – if an employer usually pays fees for non-EU nationals applying for visas then it could be seen as unfair and discriminatory if they don’t now pay for EU nationals.

There is a hitch though. Paying these application fees on behalf of employees will be considered a taxable benefit, something which many employers will overlook and/or not have the systems to manage effectively.

On 27 November 2018, the Home Secretary, Rt Hon Sajid Javid MP, and the Permanent Secretary at the Home Office, Sir Philip Rutnam, were called before the Home Affairs Committee to give oral evidence on the work of the Home Secretary in relation to immigration.

The issue of reimbursement of application fees being treated as a taxable benefit was raised, with the Home Secretary responding:

“This has been raised with us quite recently. First of all, it is quite commendable you have some employers that wish to do that. If they wish to do that I think it is a perfectly correct approach for them to try to take. … Given the relatively small amount of the fee, it may be something that is easier to look at from a tax perspective but we are very happy to engage with the Treasury and see if there is a way forward on that. …”

We continue to wait for further information from the Home Office and HMRC on whether the reimbursement of fees will be treated as a taxable benefit or not. With testing of the EU Settlement Scheme moving into a public testing phase from 21 January 2019, there is now some urgency for this matter to be resolved.