Travel expenses – what is the 24 month rule?

If you incur travel expenses between your home and a temporary client site, you should be aware of the 24 month rule which determines whether or not you can legitimately claim for such costs. Here, we ask an expert to explain how the rule operates in practice.

As a contractor, claiming expenses in connection with your work can make a significant difference to your finances – saving you the equivalent of hours of work. However tax law strictly defines what is claimable, and this can mean negotiating complex HMRC legislation and guidance.

One area which causes some confusion is the 24 month rule in relation to travel expenses. Here, Nicola Anderson, Chief Operations Officer at Boox answers some frequently asked questions asked by contractors.

So what is this rule and how does it affect you?

In a nutshell, the 24 month rule allows contractors to claim travel expenses between their home and their client’s premises, so long as it is classified as a “temporary workplace”.

For a workplace to be temporary at the start of your contract, your contract needs to be less than 24 months and you need to be planning to work in a series of contracts.  A workplace is no longer considered temporary if any of the following apply:

• You have worked at the same place continuously for over 24 months and have spent more than 40% of your time there;
• You are aware that your contract will last more than 24 months. This applies whether you know from the outset or become aware at a later date because of changing circumstances (so if you have a 6-month contract which is extended by 12 months, this is a temporary workplace. If it is then extended for another 12 months it stops being temporary when it is extended – not at the 24 month point);
• You intend working there for more than 24 months;
• You make the decision to stop contracting – at this point, the workplace is no longer temporary.

Once the 24 month rule has been triggered, your workplace is no longer considered temporary for tax purposes and you will not be able to claim travel expenses between your home and workplace while you remain working there. Note that travel between various sites is not affected.

It is important to remember that the workplace is classified as permanent from the point that it is reasonable to assume that the contract is going to exceed 24 months, so you must stop claiming from then. If the term of the contract is more than 24 months, or if you know from the beginning that it is going to exceed that, you will not be able to claim for the entire duration of the contract.

Depending on your circumstances and the nature of your work, things may not be black and white. Here are some commonly asked questions on the 24 month rule:

What if I change location but still work for the same client?

The rule applies to the workplace, not the client. However, there must be a significant difference in your commute to and from work for the 24 months to start over.

What if I return to a workplace where I have previously worked within the last 24 months?

The 24 month period starts from the first day of the contract and if you have spent 40% or more of your time at your client’s workplace within that time frame, it is classified as a permanent workplace and travel expenses cannot be claimed.

How much of a break do I need before the 24 month rule clock resets?

The 40% rule detailed above applies even if you have breaks in service. HMRC look at the 24 months as a whole and if you have worked at the same location for 40% or more of your time then the 24 month rule will be triggered.

What does it mean for my IR35 status?

From 6 April 2016 if your contract is subject to Supervision, Direction or Control you will no longer be able to claim temporary workplace expenses. This means if your contract is caught by IR35 you cannot get tax relief on these expenses.

If you are unsure, ask your accountant to carry out an IR35 contract risk assessment.

How can I get around it?

In short, you can’t. You can’t avoid it by having breaks in your contract, because of the 40% rule we talked about above.