Can I claim for the expense of renting a flat near my new contract?

One of our readers has recently been offered a contract role 200 miles away from home. Can he claim the cost of renting accommodation against his limited company’s tax bill?

“I live in North Wales but have recently secured a contract based in the City. The contract is for six months. Daily commuting is not a realistic option (for obvious reasons), but I don’t want to live out of a suitcase during the week by staying at a hotel. Can I rent accommodation near my new contract, and reclaim the costs against the company?”

The good news is that rental property expenses elsewhere can be Corporation Tax deductible and treated as a legitimate business expense. However, several strict conditions must be met.

Temporary workplace rules

The key test is whether the contract location qualifies as a temporary workplace under HMRC rules.

• If the engagement is expected to last less than 24 months, travel and subsistence costs, including accommodation, are usually allowable provided the other temporary workplace conditions are met.
• If you expect to spend at least 40% of your working time at the same workplace over a period lasting more than 24 months, it will normally be treated as a permanent workplace.
• If the contract is extended and it becomes clear that you will be attending the same workplace for more than 24 months, tax relief may cease from the moment you are aware that this is the case.

See our guide to the 24-month rule for contractors and HMRC’s temporary workplace guidance.

Accommodation as a business expense

If the workplace is temporary, the company can usually claim the cost of renting a flat or house near the contract site, provided the accommodation is required because of the contract and the cost is reasonable.

If you maintain a permanent home elsewhere, these costs are clearly additional and caused by taking on a temporary role elsewhere… although it is not a statutory condition for you to maintain another home in order to use the available relief.

The tenancy agreement can be in your name or the company’s name. Having the company arrange and pay for the accommodation directly may simplify the paperwork.

Read more in our guide to contractor accommodation expenses.

P11D reporting

Where accommodation is provided because an employee or director is working at a temporary workplace, tax relief may be available under the travel and subsistence rules.

If the accommodation qualifies as business travel expenditure and falls within the exemption for paid or reimbursed expenses, it normally does not need to be reported on a P11D.

If the expense does not qualify for the exemption, the reporting and tax treatment may be different, so it is worth confirming the position with your accountant.

Read our guide to P11D forms and benefits in kind.

Reasonableness of the claim

There are no official rules which state that the rent must be cheaper than the cost of commuting or a rail ticket, although the accommodation cost must still be reasonable for the assignment.

A modest flat near the client site may be entirely appropriate for someone working away from home for several nights each week.

The cost still needs to be reasonable for the work you are doing. Renting a normal flat near the client site for a six-month contract is unlikely to raise eyebrows, but the position becomes less clear if you choose something significantly more expensive because it suits you personally.

You can also use the property at weekends without automatically losing the relief, provided it is still being rented because you are working away from home.

Contractor vs employee

The same temporary workplace rules apply to employees and directors, including contractors working through their own limited companies.

However, contractors also need to consider the rules which restrict travel and subsistence relief for workers providing their services through intermediaries.

Where the contractor would be treated as an employee if engaged directly by the client, travel to the client site and associated accommodation may be treated in the same way as ordinary commuting rather than qualifying business travel.

Read more in our guide to IR35 and the treatment of expenses.

Key points for contractors

• Renting accommodation near a contract site can be a legitimate company expense if the workplace qualifies as temporary.
• A six-month assignment would normally fall well within the 24-month rule, assuming there is no expectation that it will continue beyond that period.
• Keeping your permanent home elsewhere will usually make it easier to show that the accommodation is an additional cost caused by the contract.
• The tenancy does not have to be in the company’s name, although having the company pay directly may provide a cleaner paper trail.
• Qualifying accommodation covered by the expenses exemption normally does not need to be reported on a P11D.
• Keep accurate records, including the contract, tenancy agreement and proof of payment.

Can the rent be claimed in this case?

A six-month London contract for someone based in North Wales would normally qualify as a temporary workplace, so the cost of reasonable rented accommodation near the client site could usually be claimed through the company.

The treatment will depend on the workplace remaining temporary and on the engagement not being caught by rules which treat travel to the client site as ordinary commuting.

For more background, see GOV.UK on temporary workplaces and HMRC’s guidance on rented accommodation while working away from home.