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The 24-month rule and how it affects travel expenses

Limited company FAQs for contractors, business owners and entrepreneurs

We're frequently asked this question and often seen it confused with the test as to whether IR35 applies. In fact, it relates to the question of whether a working location is a temporary or permanent workplace and whether travelling expenses qualify for tax relief.

Under tax rules going back more than 20 years, contractors who work at a series of temporary workplaces have been able to claim tax relief for the cost of home to client workplace travel. The rules distinguish the position from normal home to permanent workplace commuting costs which are not eligible for tax relief.

However, this exceptional relief has several restrictions, a key one of which is that a ‘temporary workplace’ can only be so regarded if the period of work there does not last or is not expected to last for more than 24 months. If it does, then it is considered to be a ‘permanent workplace’ and no travel expenses will be allowable for tax purposes.

This seems straightforward if, say the engagement is for a definite period of 6 months but many contractors are offered the opportunity to extend or roll over their contract. If the contract was extended to take it beyond the 24-month period then tax relief on the travel costs ceases from the time at which it is known that the working period will stretch beyond 24 months.

Breaks in engagements with the same end client and at the same workplace can’t be used to sidestep the rule because the period of 24 months applies from the start of the engagement. If the contractor has spent 40% or more of their time at the client work site within the 24-month period, even if there were breaks, tax relief on expenses is prohibited.

Some contractors may be asked by a client to move their work locations during their contract term. On the face of it, that seems to be a change of workplace and the 24-month rule clock would restart. However, it’s not that simple. There must be a significant change to a contractor’s journey in time and cost. For example, a car journey of 5 miles turning into one of 30 miles would be regarded as significant, whereas one involving an additional 2 stops on the Tube within the same zone would not.

Frequently Asked Questions

Determining whether and when the 24-month applies can be complicated and here at PayStream our Accounts teams receive many enquiries on the topic. Here are some of the questions we are frequently asked:

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You can claim relief on your expenses until you know or have a reasonable expectation that your engagement will not last for more than 24 months.

If you are eligible under these rules travel expenses include not only the actual cost of the business journey but all other associated costs such as food and accommodation, vehicle hire charges parking etc. Ensure that you keep physical or electronic records of this expenditure.

Your mileage log can be a list of the dates travelled; where from and to, distance travelled and purpose of journey.

Tax relief is available on overseas travel in the same way as travel within the UK, tax relief can be claimed on any travel, accommodation and subsistence incurred on the journey or for the duration of the stay. Ensure that you keep full records. Depending upon the nature of your contract these trips abroad, if relating to time spent at your client’s overseas workplace may constitute a different ‘temporary workplace’ when reviewing the 24-month period.

On the face of it, it seems that your central London workplace is your permanent workplace and that, unless your client is already reimbursing you for the costs of these trips to the other outlying offices, you should be able to claim tax relief on the expenses you’ll be incurring. These are not expenses incurred under the temporary workplace rules but under the main travel between places of work rules (Section 337 ITEPA 2003).

We understand that the 24-month rule on expenses can be confusing. If you are in any doubt as to whether you should be claiming tax relief or are concerned about IR35 implications if you do, PayStream are here to advise.

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