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, there are strict conditions that must be met for this to be legitimate.

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 normally allowable.
• If the assignment becomes permanent or exceeds the 24-month threshold, relief stops from the point it becomes permanent.

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 cost of renting a flat or house near the contract site can usually be claimed by the company, provided:

• You retain your permanent home elsewhere.
• The accommodation is required purely for business purposes, not for personal convenience.
• The lease is preferably in the company’s name and paid from the company’s bank account.

For more details, read our article on contractor accommodation expenses. The company can then deduct the rental costs against profits for Corporation Tax purposes.

P11D reporting

The reporting position for temporary workplace accommodation can be more nuanced than many contractors realise.

Where accommodation is provided because an employee or director is working at a temporary workplace, tax relief is often available under the travel and subsistence rules. In many cases, this means there is no additional tax cost to the individual.

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However, the precise treatment depends on how the accommodation is provided and paid for, so it is important to discuss the position with your accountant.

HMRC guidance on expenses and benefits for accommodation explains the rules in more detail.

Reasonableness of the claim

No HMRC rule states that the rent must be cheaper than the cost of commuting or a rail ticket.

The actual tests are:

• Is the workplace temporary (under 24 months)?
• Is the expense incurred wholly and exclusively for business purposes?

If these tests are satisfied, the accommodation cost is generally allowable. That said, the expense should still be proportionate and clearly business-related. HMRC may challenge claims that look excessive or involve an element of personal benefit.

Contractor vs employee

The rules for contractors mirror those for employees sent on secondment. An employer can pay for accommodation while staff work away from home, and claim tax relief.

A contractor’s limited company stands in the same position, subject to the same restrictions.

Key points for contractors

• Renting accommodation near a contract site can be a legitimate company expense if the workplace is temporary.
• Always keep your permanent residence. Relocation permanently breaks the temporary workplace rules.
• Make sure that your rental agreement is in the company’s name where possible.
• Report the accommodation on a P11D even if the relief cancels out the benefit.
• Maintain accurate records, including contracts, rental agreements, and documentation of business necessity.

Final thoughts

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

However, it must be handled carefully to avoid falling foul of HMRC’s rules. Make sure you talk to your accountant first.

For background, see GOV.UK on temporary workplaces and accommodation expenses. Always confirm the position with your accountant before entering into any long-term rental arrangement.