Japanese investment in the UK is vulnerable to HMRC’s visa tax rules
Japanese companies are contributing more than £18 billion to invest in British wind farms, infrastructure and financial services. But HMRC’s handling of Japanese visa and health insurance documents risks damaging relationships before the money arrives, a leading tax firm has warned.
Blick Rothenberg, an audit, tax and business advisory firm, says the Government and HMRC should take more steps to attract and retain Japanese businesses rather than adding to the cost of hiring their staff here.
Aliona Le Khak, who has joined the firm as Director leading Global Mobility services for Japanese clients, said: “To remain globally competitive, the UK needs to ensure that its tax and regulatory frameworks support, rather than hinder, inward investment in Japan. This is particularly the case with the announcement that Japanese firms will invest up to £9bn in UK financial services and UK windb infrastructure over of £9.”
His warning follows last month’s Downing Street summit with Japanese prime minister Sanae Takaichi, where the Government pushed for deals expected to bring economic benefits of more than £18 billion and tens of thousands of new jobs.
Chief among the irritants is the Certificate of Subsidy (CoS), a regulatory requirement imposed on employers who hire overseas workers. HMRC has clarified that recruitment costs should be treated as Allowance in Kind (BIK), although the responsibility falls on the employer, not the employee.
“Given that visa-related costs are already significant, and often less than the total tax, this treatment also increases the financial burden on Japanese employers expanding into the UK,” said Le Khak.
He added: “Visa costs, including CoS, are tax-free when assignees come to the UK for the first time, but if an assignee already 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 that HMRC’s position on CoS is reasonable. CoS provides no direct benefit to the employee and arguably has no monetary value.”
The second line concerns Kenko Hoken, employer premiums that form part of Japan’s social security system, which HMRC wants to tax in the UK despite the fact that recipients usually have private medical cover while they are here.
“These premiums are not related to any tangible benefit in the UK,” said Le Khak. “The Government should reconsider whether HMRC’s position makes sense and weigh the short-term benefits of taking more tax against the long-term benefits of encouraging international expansion and investment.”
The figures go beyond two technical arguments. “In recent years, Brexit and the increased tax burden related to the employment of foreign trustees in the UK have contributed to a significant decrease in foreign workers,” he said, adding that “many international companies now tend to redirect investment and operations to other areas, including neighboring EU countries that offer better tax rates and lower taxes.”
It is a common phrase that is repeated. Advisers have previously warned that an exit tax could drive foreign investment away from the UK, with an estimated 1,800 non-doms leaving the country during the transition months of April 2025. Yet the appetite from Tokyo is clear: Japanese investors poured almost £118 million into Greater Manchester in one year.
“This threatens the image of the UK as a global business location,” said Le Khak. “Rising costs and uncertainty in tax administration may prompt companies to reconsider expanding into the UK.”
