Many contractors may have heard of the 2 year or 24 month rule with respect to travel and subsistence expense claims.
In this article, we have tried to provide a simple explanation of the rules, and how they apply to contractors.
IT contractors are allowed to claim travel expenses as long as such claims relate to a location which meets HMRC’s definition of a “temporary workplace”.
The 24 month rule
If you work at the same location beyond the 24 month mark, you may no longer claim travel expenses. And crucially, the moment you are aware that your contract will last beyond the 24 month mark, you must stop claiming travel expenses.
This means that if you are aware 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.
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 continuing 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.
(You can read the full clarification of the 24 month rule in HMRC tax bulletin 74).
How does the 40% rule work?
One complication arises when a contractor returns 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 you spent 40% or more time at your current workplace, you cannot claim travel expenses.
For more details, and examples of how the rules are applied by HMRC, consult EDM32080.
Understandably, the calculation of 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.
The 24 month rule applies regardless of the business structure you work under (ltd company or umbrella company being the most widely used).
Changing your agency, umbrella company, or even employer makes absolutely no difference to the application of these rules.
The rules governing travel expenses are complex, so if you are unsure whether you can claim expenses or not, make sure you consult your accountant or umbrella company administrator.
For the fine print, consult EDM32080 here.