Contractor travel expenses – what are the 24 month (and 40%) rules?

Many contractors travel from home to a temporary workplace. You should be aware of the 24 month rule which determines whether or not you can legitimately claim any travel costs. Here, we 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.

However tax law strictly defines what you can claim, and this means understanding fairly complex HMRC legislation and guidance.

One area which causes some confusion is the 24 month rule and how it affects travel expense claims. Here, we look at how this rule works, and ask an employment status expert how it applies if your contract work is caught by IR35.

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

Put simply, the 24 month rule allows contractors to claim travel expenses between their home and their client’s premises, as 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 last less than 24 months. At the start of the contract, there’s no expectation that the contract would automatically renew.

A workplace is no longer considered temporary if any of the following conditions apply:

• You work at the same workplace continuously for over 24 months and spend 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. For example, 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 expect to work at the site for more than 24 months;
• You decide to stop contracting – at this point, the workplace is no longer temporary.

Some further conditions

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

Travel between various sites is not affected.

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 that point onwards.

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. 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 rule will be triggered.

What if I’m caught by IR35? Can I claim travel expenses?

If your contract is subject to Supervision, Direction or Control (SDC) rules you will no longer be able to claim temporary workplace expenses. This means that if your contract work is caught by IR35 you cannot get tax relief on these expenses.

We asked IR35 status expert Seb Maley from Qdos to explain further:

It’s very unlikely that a contractor can claim travel & subsistence expenses when operating inside IR35. It does indeed depend on SDC – if a worker is under the SDC (or right of SDC) of a client then they cannot obtain relief on such expenses. Some umbrella companies did try to find ways around this but they seemed to be short-lived. However, if a worker has to travel to multiple sites as part of an engagement, relief on travel & subsistence may be allowable.

You can read about the technical aspects of SDC in EIM2037.

Does the 24 month rule have any impact on my IR35 status?

The 24 month rule still exists but is nothing to do with IR35 and will have no impact on status. The 24 month rule governs when a workplace can be considered ‘temporary’, which means claiming relief on travel expenses is allowable (if outside IR35/no SDC). The restriction is triggered as soon as a worker knows the assignment will exceed 24 months – so not actually at the 24 month point.

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.