One rule that is highly relevant to limited company contractors, in particular, 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, our brief guide will help clarify some of the most frequently asked questions about what is and isn’t covered by the 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 starts from the moment you begin to travel to your client’s site. In this case, it is classed as your temporary workplace and to qualify as such your contract should be for no longer than 24 months; even when the length of the engagement is not stated, as far as the rule is applied, it will be assumed to be less than 24 months.
Provided these two conditions are met, you can claim for 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 ‘temporary workplace’ status no longer applies
You won’t be able to claim travel expenses if you become aware that your contract is going to last longer than 24 months because there is more work involved than anticipated, or the client asks you to take on another project.
It’s important to note that this applies at the point the contract is extended and not when it goes beyond 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, it ceases to be temporary from that point.
You can’t claim if you plan to work at the same site for longer than 24 months or if you decide to stop contracting for some other reason.
What if my location changes but the client is the same?
This can happen if your client has more than one site and asks you to do some work in another office. The point to note is that the rule is applied to the workplace and not the client. That said, the new location would have to change significantly and add to your commute in terms of time before you can get tax relief on travel expenses.
For example, if you have to drive half an hour or 20 miles to another location, the 24-month period would restart and you can claim expenses. If the change of location only involves say an extra tube stop but is still in the same zone, this is unlikely to qualify as a new temporary workplace.
What happens if I return to a site where I’ve worked in the last 24 months?
This is not an unusual scenario, especially if you’ve done a good job and are asked to come back again. Unfortunately, this is where the 40% rule comes in and if you’ve spent 40% or more of your contracted hours at the client’s site within the 24-month timeframe, it will no longer qualify as a temporary workplace.
This remains the case even if you take one or more breaks in service within the period.
HMRC looks at the 24-month period as a whole so you can’t reset the clock as it were. To qualify as a new workplace, there would need to be a gap of at least 60% of the 24-month period (15 months) between stints of working at the same site.
How is my IR35 status affected?
This is another area that can cause confusion but it’s important to remember that the 24-month rule only applies to expenses and not your IR35 status.
However, changes introduced in 2016 mean that in some circumstances, lengthy contracts where you are subject to direction, supervision or control would no longer allow you to claim tax relief on travel expenses.
If you are offered a long-term contract you should always get your accountant to undertake an IR35 contract risk-assessment first, so you know exactly where you stand.
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