17 September 2024
Table of contents
Table of contents
Like most self-employed people, contractors can usually claim business-related expenses against their tax bill. Contracting tends to involve working with a client over a specific period of time though, so to avoid any sneaky claims for tax relief from people who are actually working more like an employee, HMRC introduced the 24 month rule to limit claims for travel expenses.
Employees of any business are usually able to claim reasonable expenses for travelling to and from their permanent place of work to a temporary workplace.
A good example of this would be where an accountant works in an office, but needs to go out to meetings at a client’s premises or travels to conduct an audit. The office is the permanent place of work and the client’s premises is just a temporary workplace.
The crucial difference is that you can’t claim expenses for travel costs between home and a permanent place of work, because this is seen as a private journey.
Contractors work through their own business rather than as an employee. Instead of being reimbursed for any expenses by their employer, a self-employed person will offset the cost of any travel expenses against their tax bill. In short, the more things they claim for, the less tax they pay.
This meant there was a potential tax loophole though, and HMRC really isn’t a fan of those. Known as ‘disguised employment’, a contractor could potentially use the tax benefits of working through their own business when in reality they’re actually more like an employee. These tax benefits could include things like:
HMRC introduced the IR35 rules to close this loophole and keep things fair. These rules also restrict claims for travel expenses, so you can only include them if you’re travelling to a temporary workplace.
In short, contractors can only claim the cost of travelling from where they live to their client’s premises if it’s a ‘temporary workplace’. This is where the 24-month and 40% limits come in. A workplace is only classed as a temporary workplace if:
The 24-month rule for claiming travel expenses is based on expectation. That is, how long do you expect to work there? This one catches a lot of people out.
For example, a contractor who agrees to a contract of 6 months is absolutely fine. Someone who agrees to a 30-month contract can’t claim travel expenses for that job because the place of work isn’t classed as temporary (because they expect to be there for more than 24 months).
A workplace is also only classed as temporary if the contractor spends less than 40% of their time there. For instance, a contractor works at home for 4 days a week, and only goes to the client’s office one day a week. This is also the case where a contractor works for more than one client, each for less than 40% of the time.
This is treated as a rolling, cumulative amount. Basically, you could work five days a week for the first week of the month at one client, and then five for another and so on, and still wouldn’t breach the 40% rule.
The 40% rule is an important one because it takes precedence over the 24-month rule. If you don’t work more than 40% of your time in one place then the 24-month rule becomes irrelevant.
As always when you’re dealing with HMRC, there is another thing that you need to be aware of, and that is the classification of a ‘place’. As far as HMRC are concerned the place is not the premises of a particular client but the journey you take to get there. We know it sounds like HMRC are branching into motivational speaking, but it’s all about tax with those guys.
If the journey to multiple locations is substantially the same, then they could be classed as the same place.
To give you an example, imagine a contractor who works in compliance for banks. They have five clients who are all based on the same street, and they visit each of them once a week.
To any normal person, this would seem to be a contractor visiting different temporary workplaces but to HMRC, because they are taking the same journey which costs the same amount of money every day, they breach the 40% rule. The fact that they are seeing different clients is irrelevant.
It’s sometimes useful to look at how the rules are applied in real life. Because, you know, that’s where everything actually happens.
Imagine a computer coder who does their work using their own systems at their home office, and visits the client’s site once a month for a project meeting. In this case the 24-month and 40% rules are unlikely to cause any problems.
A different contractor signs up for a 6-month contract. They can claim expenses for the first six months. They then get a 12-month contract extension, and they can claim for this period too. This is because the initial 6-month period, plus the 12-month extension adds up to 18 months. They’re under the 24-month rule.
Then they sign up for another 12-month contract. They’re now disallowed from claiming because the expectation is that this will take them over the 24-month time limit. They won’t be able to claim expenses for any of the second 12-month extension.
A contractor signs up for a 30-month contract and they are barred from claiming any travel expenses. However, the contract ends after 18 months.
In this instance, the contractor still can’t claim the expenses because the expectation was that they would go over the 24-month time limit, even if, in practice, they did not.
So, you can see that the expectation of using a temporary workplace is more important than the actual use for the purposes of expenses. It also means that it is very, very important to keep good records of absolutely everything. As people who make online accounts software we’re obviously going to say that, but it is important.
The ‘temporary workplace’ rules of 24-month contracts and 40% time limits can be a bit confusing, so we answer some of the most frequently asked questions below. You’re welcome.
The 24-month rule for claiming expenses is a continuously rolling period. There is no ‘clock stopping’ point, so once you start working at a client’s site, the 24 month period starts and doesn’t stop again until 24 months have passed – even if you have a 3 month break in the middle.
This is fine, as long as the expectation is that you won’t be there for more than 24-months and the journey is substantially different.
Then you have to make sure you comply with the 40% rule. If not, then the 24-month rule applies.
Although the 24-month rule doesn’t form an official part of the assessment of your IR35 status, you can bet that any HMRC inspector will consider the time you spend travelling to a single office. They apply the principle that if it looks like employment, it probably is. It’s always a good idea to keep records of how your IR35 status was assessed for each job.
You can’t and we wouldn’t suggest you try. HMRC are very hot on contractors who try to break the rules! Remember the 40% rule and also bear in mind that the 24-month rule is based on expectation and not actuality.
No. The travel must be for wholly business purposes.
No, because the expectation is that you will breach the 24-month rule right from the start.
No. HMRC see this as being the same place. The rules are based on the journey you take, not the company you work for.
Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.
A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.
Create your account today, and decide what to do with all the extra time you get back. We hear Pilates is popular.
Live chat support
No card details required
Making Tax Digital compliant
