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Japanese companies are lining up more than £18 billion of investment in British wind farms, infrastructure and financial services. But HMRC’s treatment of visa paperwork and Japanese health insurance risks souring the relationship before the money lands, a leading tax firm has cautioned.
Blick Rothenberg, the audit, tax and business advisory firm, says the Government and HMRC should take further steps to attract and retain Japanese businesses rather than adding to the cost of employing their staff here.
Aliona Le Khak, who has joined the firm as a Director leading Global Mobility services for Japanese clients, said: “To remain competitive on the global stage, the UK needs to ensure that its tax and regulatory frameworks support, rather than deter, inward Japanese investment. Especially in light of the announcement that Japanese firms will invest up to £9bn in UK offshore wind farms and more than £9bn in UK infrastructure and financial services.”
Her warning follows last month’s Downing Street summit with Japanese prime minister Sanae Takaichi, at which the Government trumpeted agreements expected to deliver more than £18 billion in economic gains and tens of thousands of new jobs.
Chief among the irritants is the Certificate of Sponsorship (CoS), a regulatory requirement placed on employers who hire overseas workers. HMRC has clarified that the cost of obtaining one should be treated as a taxable Benefit in Kind (BIK), even though the obligation falls on the employer, not the employee.
“Given that visa-related costs are already significant, and often subject to tax gross-up, this treatment further increases the financial burden on Japanese employers expanding into the UK,” Le Khak said.
She added: “Visa costs, including CoS are not taxable when assignees come to the UK for the first time, but if an assignee who is already located in the UK applies for a visa for the first time or applies for a visa extension, it is fully taxable. The Government should consider whether HMRC’s position on CoS is reasonable. The definition of BIK is a non-cash benefit provided to an employee by an employer that holds a monetary value – except a CoS provides no direct benefit to the employee and arguably does not hold a monetary value.”
A second row concerns Kenko Hoken, the employer premiums that form part of Japan’s social security system, which HMRC is seeking to tax in the UK despite assignees typically holding private medical cover while here.
“These premiums do not relate to any tangible UK-based benefit,” Le Khak said. “The Government should again consider if HMRC’s position is reasonable and weigh up the short-term benefit of additional tax take verses the long-term benefits of encouraging international expansion and investment.”
The stakes go beyond two technical disputes. “In recent years, Brexit and the increasing tax burden associated with employing expatriate assignees in the UK has contributed to a noticeable decline in the expatriate workforce across the board,” she said, adding that “many multinational companies are now more inclined to redirect investment and operations to alternative locations, including nearby EU countries that offer more favourable tax regimes for expatriates and lower employment costs.”
It is a familiar refrain. Advisers have previously warned that an expat exit tax could drive foreign investment away from the UK, and an estimated 1,800 non-doms quit the country within months of the April 2025 reforms. Yet the appetite from Tokyo is plainly there: Japanese investors poured almost £118 million into Greater Manchester in a single year.
“This risks undermining the UK’s attractiveness as a destination for international business,” Le Khak said. “Increased costs and uncertainty in tax treatment may prompt companies to reconsider further expansion in the UK.”
