The UK government has announced that it will be significantly increasing visa application fees as part of its strategy for funding the newly announced public sector pay deal.
Why is the government increasing fees at a time of skills shortages across the economy?
To understand why the government has decided to increase fees now, it’s important to understand the backdrop to the announcement.
The UK has seen widespread strikes across a number of public sector professions this year, and in almost all instances the key issue on the table is pay. The government has consistently argued against awarding the large increases that some professions are demanding as the worry is that these higher wages will keep inflation levels high, and lowering inflation is one of the government's key targets. The latest figures released on 19th July showed that inflation has dropped by more than expected to 7.9%, so whilst the announcement on the fee increases came a week before the inflation figures were published, it’s reasonable to expect that the treasury had a good idea what the inflation route would be so felt they now had more of a remit to offer an improved pay deal to public sector workers.
As with every spending announcement, the first question is how will it be funded? In this case, and bringing us back to the subject of the article, the increased spending will be partially funded by increasing visa application fees.
It’s also important to consider that visa application fees have been largely static for the last three years, and considering the recent rate of inflation, many practitioners have been expecting an increase for some time. Indeed, increasing the Immigration Health Surcharge was a Conservative manifesto pledge at the last election, so this should hardly come as a shock.
Which visa fees are increasing?
Simply put, everything.
Fees for work and visit visas will increase by 15%.
Fees for study visas, certificates of sponsorship, settlement, citizenship, wider entry clearance, leave to remain, and priority visas will increase by at least 20%.
The Immigration Health Surcharge is increasing from £624 a year to £1,035 a year, and the discounted rate for students and under 18s is increasing from £470 a year to £776 a year.
To try to put some context to these fees, at the moment it costs £9,554 for a standard 5-year visa application under the Skilled Worker route, which is the primary work visa, however once these increases come into effect the cost will rise to approximately £11,900.
What will be the impact on businesses?
Since the introduction of the Immigration Health Surcharge in 2015, visa application fees have increased dramatically. The Immigration Skills Charge was only introduced in April 2017, so within the last ten years the cost of a standard 5-year visa application under the Skilled Worker (formerly Tier 2 General) route has risen from approximately £1,300 to nearly £12,000.
Despite this, the number of businesses wanting to recruit from overseas has continued to increase year-on-year, and the periodical increases in fees doesn’t seem to have had a detrimental effect. Indeed, one possible conclusion to draw from this is that, when considered holistically, businesses still see the immigration system as offering value for money thanks to the wider talent pool that they can recruit from and not having to pay as much in finders fees to recruiters.
Nevertheless, the impact of these increases on the bottom line will be severe. The biggest users of the immigration system are the Big 4 accounting firms and IT giants such as Wipro, TCS and Cognizant, who will each typically sponsor more than 200 applicants each year. For companies of this size, it is reasonable to expect that they will be paying an additional £450,000 of government fees every year. This is a considerable amount of money for any business and may give some pause for thought.
For smaller businesses who may only sponsor a handful of overseas workers, the increases will be just as keenly felt.
How will this affect the personal finances of sponsored workers?
Whilst many employers pay for the entirety of the application fees, they are under no obligation to have to pay the Immigration Heath Surcharge or the visa application fee. To an individual worker this can be several thousand pounds, so at the very least most companies cover the upfront cost, and then may decide to recover the cost from the employee over a period of time. This has been an increasingly popular option in recent years, however passing the additional cost onto employees is not without downsides.
At the moment, a typical monthly clawback agreement for the costs of a 5-year visa is approximately £75, which is deducted from wages before tax. Under the new fee structure this will increase to approximately £110 a month, which is quite an increase, especially at a time when household budgets are under so much strain. To help mitigate this additional strain on personal finances, one potential option that businesses could use instead of a clawback agreement is a minimum service agreement, where the employee only needs to repay the costs if they leave within the validity period of their visa.
What actions can I take?
Employers have a range of tools available to them when it comes to managing the cost of visa applications, however they require careful consideration and planning. Communicating the cost increase across the business is a good starting point. Visa fees are complicated and there are many misconceptions about what fees apply to particular scenarios, so the more knowledge stakeholders have, the better.
Here are three steps you can take to help mitigate the increase.
1. If you are planning on recruiting from overseas within the next 6 months, we recommend that you prioritise this to make use of the lower application fees whilst they still last. Waiting too long could cost as much as £2,400 per candidate.
2. Think carefully about how you want to spread the cost of visa application, both in terms of time and with the employee. There is no one size fits all model here as every scenario is going to be different, however you should consider the following.
Rather than doing a single 5-year application, split it up into an initial 3-year visa followed by a 2-year extension. This is slightly more expensive in the long run as you will have two visa application fees to pay, however, the cost will be more spread out, so you don’t have such large payments to make.
Think about how you want to share the cost with the employee. A clawback agreement or a minimum service agreement are the go-to options in this regard, however the right course of action will depend on the situation.
3. Think strategically about how and where you use the immigration system in your business. Unless you have very particular requirements, the starting point with recruitment should always be to look at who is available in the UK talent pool. If there is a shortage in the given field, or you need a specialist skill set that is only available in a particular country then the immigration system can be very useful, however it should not be the default option.
The government has not yet announced a timetable for implementing the fee increases, as soon as this is announced we will provide you with an update.
As trusted advisers, our team provides guidance for both business and private immigration matters. Our team also works in partnership with a wide range of organisations, from start-up businesses to multinational PLCs, across a wide range of industry sectors. Get in touch today with our Immigration team.
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