In April 2025, significant changes were made to the definition of a "small company" under the Companies Act 2006, which have substantial implications for immigration costs, particularly concerning the Immigration Skills Charge (ISC). These changes are crucial for businesses that sponsor migrant workers under the Skilled Worker or Global Business Mobility routes. The ISC is a fee that sponsor employers must pay when sponsoring workers, and the amount varies depending on the size of the sponsor organization. Small and charitable sponsors pay £364 per year of the worker’s visa, while medium-sized and large sponsors pay £1,000 per year. This distinction can significantly impact the cost associated with the ISC, as a small company sponsoring a worker on a five-year visa would only have to pay an ISC of £1,820, whereas a medium-sized company would pay £5,000, almost triple the cost.
New thresholds for small companies
The updated thresholds for defining a "small company" came into effect on 6 April 2025. Under the new regulations, a company qualifies as "small" if it meets at least two of the following criteria: an annual turnover of no more than £15 million, a balance sheet total of no more than £7.5 million, and an average of not more than 50 employees across the financial year. Previously, the thresholds were a turnover of no more than £10.2 million and a balance sheet total of no more than £5.1 million. The employee threshold remains unchanged. As a result of these changes, more companies will fall within the "small company" definition, allowing them to benefit from the reduced ISC rate.
Implications for businesses
The redefinition of "small company" has significant financial implications for businesses sponsoring migrant workers. Many sponsors that previously had to pay the higher ISC rate will now be eligible for the reduced rate, resulting in substantial savings. However, it is unlikely that the Home Office will implement these fee changes automatically. Sponsors must proactively report their new status on the Sponsorship Management System (SMS) to benefit from the reduced ISC rate. Failure to report this change within 20 working days of the threshold changes could result in the revocation of the sponsor license.
Reporting obligations and potential refunds
Sponsors are under a general obligation to report changes in their organisation’s size within 20 working days. If a business fell within the "small" company definition upon the threshold changes on 6 April 2025, it must report the change by 6 May 2025. The Home Office has also stated that they will issue partial refunds to sponsors who initially paid the increased ISC rate but have since fallen within the "small company" definition, provided they notify the Home Office of this change. For organisations that have sponsored multiple workers in recent years, and whose size has reduced as a result of the threshold changes, there could be thousands of pounds worth of partial refunds waiting to be claimed.
Strategic considerations for businesses
Businesses should review their current sponsorship arrangements and assess whether they now qualify as a "small company" under the new thresholds. This review is crucial to ensure that they are not overpaying the ISC. Additionally, businesses should consider the potential impact of these changes on their recruitment and sponsorship strategies. For example, companies that now qualify as "small" may find it more financially viable to sponsor additional migrant workers, given the reduced ISC rate.
Broader implications for the immigration landscape
The changes to the "small company" definition are part of a broader trend in the UK’s immigration landscape, which includes increased immigration fees and changes to the sponsorship process. As of 9 April 2025, most visa application fees have increased by around 5 to 10%, and the Certificate of Sponsorship (CoS) fee has increased by almost 120%, from £239 to £525. These changes underscore the importance of businesses staying informed about the evolving immigration rules and their potential financial implications.
Compliance and risk management
Given the increased enforcement of immigration rules, businesses must ensure compliance with their sponsorship obligations. This includes conducting regular audits of their sponsorship arrangements and ensuring that all changes in company size are promptly reported to the Home Office. Non-compliance can result in severe penalties, including the revocation of the sponsor license and the curtailment of sponsored employees’ visas.
This article was created with insights from Lex HR - your always-on HR legal assistant. Lex HR helps HR professionals navigate complex employment law with confidence, providing real-time, reliable advice tailored to your needs. Try it free today and see how much easier compliance can be.
