This guide explains 24 month travel and subsistence expense rules and how they apply to contractors. How do the rules work in practice, and how do you calculate your eligibility to claim travel and subsistence expenses?
Can all contractors claim for travel and subsistence expenses?
No, it depends on several factors.
You can usually claim such expenses if you’re a limited company contractor and your work isn’t caught by IR35.
If you are an umbrella company contractor, you might be able to claim as long as your work is not performed under your client’s Supervision, Direction, or Control – new rules came into play in 2016.
However, the threshold to beat the SDC definition is high, and many umbrella companies don’t process travel expenses at all.
If you’re sure that your work doesn’t meet the definition of SDC, you may be able to claim tax relief on travel expenses at year-end via the self-assessment process.
The 24 month rule – what is it?
You may be able to claim travel and subsistence expenses if you work at the same location for less than 24 months. In other words, the site you work at meets HMRC’s definition of a ‘temporary workplace’.
If you know from the outset of a new contract that the project is likely to last beyond 24 months, you must not claim any travel expenses between your home and place of work – from day one.
If you are aware at any stage that your contract will take you beyond the 24-month threshold, your eligibility ends immediately.
For example, if you have a renewal at 18 months, which takes you beyond the 24 month threshold, you can no longer claim.
Or, in the words of HMRC:
This rule says that a place cannot be a temporary workplace if the employee’s attendance is:
in the course of a period of continuous work at that place lasting more than 24 months, or
if it is at a time when it is reasonable to assume that it will be in the course of such a period.
How does the 40% rule work?
One complication arises when contractors return to a workplace they have previously attended. Such situations are governed by the so-called “40% rule”.
If you look back over the previous 24 months and spent 40% or more time at your current workplace, you cannot claim travel expenses.
For more details and examples of how HMRC applies the rules, consult EDM32080.
Understandably, calculating this percentage can be a complicated process (and ever-changing), so you should always seek professional advice if you are unsure about what you can claim for.
What type of expenses can be claimed under the 24-month rule?
Under the 24 month rule, contractors can claim:
Travel expenses (e.g., fuel, public transport, parking fees)
Accommodation costs are available if you need to stay overnight.
Meals and subsistence costs while working away from your usual residence.
What happens if my contract is extended beyond 24 months?
If your contract is extended and you breach the 24-month threshold, your workplace is no longer considered ‘temporary’ when you know the extension will take you past 24 months.
Any travel and subsistence claims you submitted before you were aware of the extension are still valid.
What if I only work part-time at the location?
As mentioned above, if you spend less than 40% of your time contracting at a particular site, it may still be classified as a ‘temporary workplace’ even if you work there for more than 24 months.
The 24 month rule applies based on the percentage of your time spent at that location.
How does IR35 impact the 24 month rule?
If your contract work is caught IR35, you’re effectively considered an employee for tax purposes, and your ability to claim travel expenses under the 24-month rule is limited.
If your contract work falls outside IR35 and you trade via your own limited company, you can usually continue to claim travel and subsistence expenses, provided the workplace is temporary.
Can I claim expenses for contract work at multiple sites?
Yes, if you contract at several different temporary workplaces within the 24 month timeframe, you can claim expenses for each one, as long as none of the sites becomes your permanent place of work.
What if my new contract is in a similar location to my previous one?
If you work for one client – in the City, for example – for a year and then start a new role – close by – this doesn’t represent a significant change in location as far as HMRC is concerned.
If there is no significant effect on the distance travelled, direction, time or cost, HMRC ultimately treats the two workplaces as one to prevent abuse of the travel expense rules.
How do I work out when the 24-month rule starts?
The 24 month period begins when you start working at a particular site, not necessarily the start date of your contract.
If you switch between different workplaces for the same end-client, each new location triggers a new 24-month countdown, assuming it’s considered a temporary workplace.
What if my contract ends before 24 months but resumes later?
If your contract ends and then restarts at the same site after a break, the 24 month rule may reset. However, if HMRC raises an enquiry, they may look closely at the break period and whether it constitutes a genuine gap in work.
The ‘countdown’ may not be reset if the break is short.
What records should I keep to comply with the 24-month rule?
To make sure you can answer any questions should HMRC look into any expense claims, make sure you have:
Clear records of all expenses claimed, including receipts for travel and subsistence claims
Evidence of your contract start and end dates
Paperwork showing how long you expect to be at a particular workplace
Any changes made to your contract duration or location
Can I claim expenses if I’m a permanent employee working at a temporary location?
No. The 24-month rule is mainly designed for individuals whose workplace is genuinely temporary. If you’re a permanent employee at a single site, the rules about claiming travel expenses differ and are much stricter.
What should I do if I’ve claimed expenses beyond the 24 months?
If you’ve incorrectly claimed travel or subsistence expenses after the 24 month rule threshold has been breached, you should inform HMRC and amend your tax return to avoid penalties.
Overclaiming could result in HMRC interest and fines. If you’re unsure what to do, ask your accountant for help.
According to our partner, Qdos:
If a contractor has been incorrectly claiming travel and subsistence, HMRC will reclassify the amounts as income, and the contractor will need to pay tax on it (estimated at approximately 46%).
Make sure you ask a professional for advice before making a claim
The rules governing travel expenses are complex, so if you are unsure whether you can claim travel and subsistence expenses, talk to your accountant or umbrella company account manager.
