The 24 month rule and how it affects contractor travel expenses
Contractors are allowed to claim travel expenses through their Limited Companies, if the travel is related to a ‘temporary workplace’, which for contractors will mean their clients’ workplace. The 24 month rule relates to the HMRC definition of a ‘temporary workplace’. If you are aware that you will be travelling to the same workplace for more than 24 months, this workplace becomes a ‘permanent’ workplace. From then on any costs associated with travelling to a ‘permanent’ workplace must not be claimed as an expense.
How the 24 month rule works
The key points are:
- A contractor who works at the same location for more than 24 months cannot claim travel expenses once they have passed the 24 month date.
- The minute the contractor is aware that their contract will continue beyond 24 months they should stop claiming travel expenses.
- A contractor cannot claim any travel expenses at all – for the entire duration of the contract – if they know from the beginning that they are likely to be working for the client for more than 24 months.
If you are un-sure of where you stand with your own travel expenses, speak with your accountant to clarify matters.
The 40% rule
Many contractors have quite flexible working arrangements with their clients, meaning they are spending time at several different sites over the course of a month. For these contractors the HMRC’s ‘40% rule’ applies. Under this rule, if a contractor spends most of the week, say three days, at one site and only two at another they can claim travel expenses only up to the point that they are aware that they will be spending 40% of their time at one site. Once they are aware, they cannot claim tax relief to and from the site they spend three days a week at. However, if they make individual journeys to different locations they will be able to claim for these. The 24 month rule calculation includes time even if there has been a gap of a month or two between contractor visits to the site. If a contractor returns to a site the total time spent should be calculated and the 40% rule used if applicable.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.