The two year rule


What is the term, the 24 month rule, and how does this relate to claiming tax relief for employee travel through a limited company or as a sole trader? If you are a contractor and you are running your own company have you come across this in the past? Let’s take a look into what this actually means, when you are looking to claim travel expenses and subsistence costs.

In general, the cost of commuting between home and a permanent workplace is not a business expense and you are unable to claim this against tax. If an employer pays or reimburses the cost of this to the employee, this will be taxable on the latter, just like any other form of income.

Initial thoughts

Please note, the cost of travelling to a temporary workplace is a tax-deductible expense. If an employer pays or reimburses such costs to the employee, the amount that the employee receives is not taxable on the employee. The business will also receive tax relief on these costs via its own tax bill.

Further to this, there is no definitive definition of what a temporary place of work is. Indeed, this is except to say that it is not a permanent one.

This is quite a complicated subject and if you would like an accountant that is knowledgeable in such areas and you feel your accountant is not up to this, please take a look at how you can change your accountant.  

The types of costs that the rule applies to 

The types of employee travel costs we are talking about will include any travelling type expenses that are incurred when you travel to a work site. Such costs will include:

  • Rail fares
  • Taxi fares
  • Flights


A permanent site  

A permanent site is defined as the only place of work of the employee while working for the employer. In this context, the employer does not mean the client to whom you are providing your services to. Neither does it mean to any agency via whom you work. Where a contractor provides their services via their own company, their company is the employer. Therefore, there are two factors that you will need to consider here:

  • A site where the employee has come to expect to work for a period for over 24 months. It is the reason why the heading above is ‘The 24 month rule.’
  • `Expectation’ means that the employee knows the position. For example, the employee has signed a contract extension that bases him or her at that contract site for longer than 24 months.

Furthermore, there is another item to think about with the second point above called the 40% rule. This is that for the site to be a permanent one; you would need to be spending at least 40% of your time on average at the worksite.

Therefore, you could potentially have two permanent places of work at the same time.

For instance, you could be spending 50% of your working time at one worksite and 50% at another site. The cost of journeys between home and either site would not be tax-deductible. To clarify, this is because you would be commuting to two permanent places of work. However, your journeys between the two sites would be tax-deductible.

There is a further twist to the 24 Month Rule  

A contractor could take on a contract that is not in connection with his or her previous one. Perhaps with a different agency or even with a different client. The journeys between home and the new site are “substantially the same.” Indeed, this is when comparing them to those to and from the previous site. If this is so, HM Revenue & Customs (HMRC) will treat the journeys as if they were to the same site as the previous one. By doing so, this would make it more likely that the 24-month Rule would apply. This rule might not seem logical, and it may even seem unfair. However, this is how it is.

HMRC has not to date, and probably never will define what “substantially the same” means.

HMRC’s example of the 24-month Rule 

The example HMRC quote in their literature on the subject concerns a person whose next contract is with a different agency. The services are for a different client but one whose worksite is within a short distance of the former work site. In their example, it is just around the corner. When it comes to making a judgement as to whether journeys are substantially the same or not, in most instances, this will be obvious. For any non-obvious instance, the contractor will have to come to their judgement. They will then have to hope this is right or proceed to submit the facts to HMRC seeking their opinion.

When a contractor relocates, in a working context, to a site, the journeys to which are not the same as those to the previous one the 24 months start over.

A record for claims for miles travelled to and from a worksite, in a vehicle provided by the contractor should be kept. This record should be made by you and be one that shows a mileage log of the journeys. The mileage log needs to be no more than a simple list of the dates travelled. The mileage list should also contain:

  • where from and where to
  • how far and
  • when it is not apparent, the purpose of the journey

Whenever possible, there should be a record of all other forms of travel. This will include the costs of staying overnight in accommodation closer to the client’s site rather than at home. These costs should be backed up by tickets, receipts, and invoices. Without such third-party proof, HMRC might reject the claim.


Part one 

Let us assume a contractor contracts to provide services to a client for nine months. This length of time is less than 24 months. It would mean that the cost of travelling between home and the clients’ work site will be tax-deductible. This claim is providing that the journey does not fall foul of the expectation of being there for 24 months. Indeed, this is as per the rule above.

Next, let us move on to the end of the nine months contract. The client requests the contractor, who accepts, to renew the contract for a further nine months. Because the worksite is the same one, HMRC would regard the two continuous periods to be one in this context. Therefore, the period working at the site has now become eighteen months. Furthermore, let us consider, in the context of not falling foul of the expectation of being there for 24 Months Rule above, again the cost of journeys between home and the worksite.  As eighteen months is less than 24 months, it is still ok to claim and the costs will be tax-deductible.

Finally, let us move on to the end of eighteen months. The client requests the contractor, who accepts, to renew the contract for a further nine months.  The total of the continuous periods at the same worksite has now become twenty-seven months.

Part two 

From the moment of signing this renewal, the contractor expects the time he will be working at the client’s site is more than 24 months.  Therefore, from that moment, the 24 month rule applies and the site has become the contractor’s permanent place of work.

Consequently, from that moment onwards, the costs of journeys between home and that site are no longer tax-deductible. The expenses of journeying to the client’s location up to the moment of signing the renewal, remain tax allowable.

Furthermore, what if the renewed contract terminates prematurely? Such that the continuous periods at that client’s site become less than 24 months. In this case, the cost of journeying between home and that site, after the signing of the renewal lastly mentioned, is still not tax allowable. The reason for this is because of the expectation that the position would have lasted to beyond 24 months.

Breaks in attendance

A contractor may have been working at a particular worksite for longer than 24 months (and spends more than 40% of their time there) and can no longer claim for his or hers travelling expenses to get to and from that worksite. The contract work may then finish, for one reason or another however the contractor then returns to this worksite in the future. There are no set rules as such, with regards to breaks in attendance and when the 24 Month clock would start again when someone returns to the same work site. However, a break for three or four months would probably be enough to justify the 24 month period starting again, once the contractor returns to the site.

Final thoughts 

As shown above, there can be some very complex rules when it comes to making expense claims for your business travel. Some of these rules are not always very clear or easy to understand when you look to work out what are allowable business expenses. A good contractor accountant will help guide you in terms of navigating the rule above. We hope this guidance here has helped to make the 24 month rule a little clearer.

Link to Contractor Advice UK group on LinkedIn

Published On: March 7th, 2021 / Categories: Expenses, Member Only Articles (Technical!), Running Your Own Company /

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  1. Shepherdspie December 18, 2020 at 9:41 am - Reply

    My initial contract was open ended but was not expected to last longer than 18 months (but after planning etc it was going to last close to 22 months). However, COVID got in the way and now it will last approximately 30 months (even though I had a period where I was unemployed with the company of approximately 3 months during the first lockdown and I have been working from home for the past 2 months). I understand the 2 year rule (although I was unaware of the ‘substantially the same’ element which may put the kibosh on my next potential employment). My contract states until work is complete but clearly, through no fault of my own, I am not in a position to complete before 2 years is up. I am concerned that they will try and get me to remain contractually which will affect all claimed and future expenses until completion. However, from my understanding I must leave employment at my 2 year point irrespective of if my client decides to pay my expenses or not.

    • scott291074 December 19, 2020 at 5:43 pm - Reply

      Hi there

      There is no definitive rule but a three month gap may be okay for the two year clock to start again.

      In addition, the two year rule is based on when you sign extensions etc i.e. as soon as you sign an extension basing you beyond the two year point is when yo stop claiming for your expenses (not when you reach two years).

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