The 24-month travel expenses rule for limited company contractors

One rule that is particularly relevant to limited company contractors is the 24-month travel expenses rule.

At a glance, it all seems pretty straightforward, but when it comes to HMRC and allowable expenses, nothing is ever quite that simple.

Hopefully, this brief guide will clarify the most frequently asked questions about what is and isn’t covered by the 24-month rule.

When you can claim

Introduced in 1998, the 24-month rule covers the expenses you can legitimately claim whilst travelling from your home to your client’s premises.

The 24-month period begins when you start travelling to your client’s site.

In this case, it is classed as your temporary workplace if you expect the period of attendance there (spending 40% or more of your working time at that location) to last no longer than 24 months.

Whether you expect to attend the workplace for more than 24 months depends on the facts at the time, including the expected length of the engagement and any extensions.

Provided the expectation is that it will not exceed 24 months (with significant attendance), you can claim qualifying travel expenses.

So far, so clear, but what happens when the terms of the contract change, for example, or your engagement is extended beyond 24 months?

When the ‘temporary workplace’ status no longer applies

You won’t be able to claim travel expenses if you become aware that the period of attendance is expected to exceed 24 months because the work is more than anticipated, or the client asks you to take on another project.

It’s important to note that this applies when you become aware of the change in expectation, not necessarily when it exceeds the 24-month mark.

For instance, if the initial contract is for 6 months and is extended by 8 months, this can still be considered your temporary workplace. But if your contract is then extended by another 12 months (and at that point it is expected to exceed 24 months in total, with 40% or more of your time spent there), it ceases to be temporary from that point.

You can’t claim if, from the outset, you expect to work at the same site in a way that spans longer than 24 months with significant (40% or more) attendance.

What if my location changes but the client is the same?

This can happen if your client has multiple sites and asks you to perform work in another office.

Note that the rule applies to the workplace, not the client.

That said, the new location needs to be sufficiently different for HMRC to regard it as a new workplace. There is no fixed mileage or travelling-time test – HMRC looks at the particular circumstances (see EIM32280).

For example, moving to a client site in a different town may amount to a new workplace, whereas moving to another office nearby or travelling an extra tube stop may not.

What happens if I return to a site where I’ve worked before?

This is not an unusual scenario, especially if you’ve done a good job and have been asked to come back.

Unfortunately, this is where the 40% rule applies.

A workplace becomes permanent (and travel non-deductible) if attendance forms part of a period of continuous work at that location that lasts or is expected to last more than 24 months, and during that period you spend (or are expected to spend) 40% or more of your working time there.

The 24-month test looks at the period of continuous work, rather than simply adding together the number of days you physically attend the workplace.

Breaks in attendance do not automatically break the “period of continuous work” – HMRC will consider all the facts and circumstances to decide whether separate stints should be linked or treated as separate periods. HMRC provides a number of examples in its temporary workplace guidance.

There is no fixed rule requiring a 15-month (or any specific) gap to reset the clock – it depends entirely on the individual case.

How is my IR35 status affected?

This is another area that can be confusing, but it’s important to remember that the 24-month rule applies to expenses, not to your IR35 status.

Since April 2016, special rules have restricted tax relief for home-to-work travel and subsistence where a worker provides services through an employment intermediary and is subject to supervision, direction or control (SDC), or the right of SDC, as to how the work is carried out.

This means workers engaged through umbrella companies will generally be unable to claim tax relief on ordinary home-to-client travel. The rules can also apply to limited company contractors where the relevant conditions are met.

You can read more about the 2016 rules in HMRC’s travel and subsistence guidance.

For limited company contractors genuinely operating outside IR35 and not caught by the 2016 restriction, the traditional 24-month/40% temporary workplace rules continue to apply.

It is important to keep the two issues separate. A contract lasting less than 24 months is not automatically outside IR35, and the 24-month rule itself has no bearing on your employment status.