The 24-month rule for contractors (temporary workplace rules) & hmrc travel expenses 24 months

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Introduction 

What is the 24-month rule for contractors from HM Revenue & Customs (HMRC) in the UK? How does this affect your ability to claim tax relief for employee travel expenses? These temporary workplace rules apply when working through a contractor limited company or as a sole trader. Indeed, when you’re a contractor, HMRC rules require consideration regarding your contractor’s travel costs. Many ask if contractors claim travel expenses. Moreover, they’ll ask if they can claim travel expenses from home to work through a UK contracting role. This guide will look at the 24-month rule (HMRC) in detail. Indeed, we’ll research how this works when running your own business.

When considering travel charges for contractors, how can you claim travel expenses on taxes? If you’re a contractor who runs your own company, are you aware of the current rules? When contracting and incurring business travel expenses, HMRC temporary workplace rules specify what you can and can’t claim. Therefore, what is the 24-month rule? This guide will examine how this affects your ability to claim tax relief on travel expenses and subsistence costs.

As we consider whether a contractor can claim travel expenses, they can do so if these are genuine business costs. When you’re claiming travel expenses as a contractor, they’ll make a difference to your overall take-home pay. This is true for your contractor travel expenses when you commute a long distance to your place of work. Therefore, when you’re claiming travel expenses to work each time you travel there and back, it is, of course, the best outcome. However, when claiming travel expenses, HMRC has rules that require consideration before making a claim.

Initial thoughts 

First thoughts 

In general, the cost of work travel expenses for UK contractors and regular employees commuting between home and a permanent workplace isn’t a business expense. As a result, you cannot claim this against tax through your contracting business. Furthermore, you can’t claim these on your tax return as a self-employed person or an employee either. If an employer pays or reimburses the cost to the employee, this will be taxable on the latter, just like any other form of income.

Therefore, when we consider allowable HMRC travel expenses, the rules around a temporary workplace require careful consideration. One way of putting this is when does a contractor become an employee (UK)? I.e., when is their travel from home to work no longer tax-deductible? This guide will investigate the existing rules from HMRC (business travel expenses) and explain how these work for you as a contractor.

What are temporary workplace rules & the 24-month rule (HMRC) for contractors?

Please note the cost of travel to a temporary workplace is a tax-deductible expense. If an employer pays or reimburses such employee travel expenses, the amount the employee receives isn’t taxable. In this case, when you’re an IT contractor being paid for travel by your company, the business will receive temporary workplace tax relief on your contractor travel expenses via its tax bill.

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

The rules covering a temporary workplace aren’t straightforward for limited company contractors. Therefore, if your accountant doesn’t know the rules, what should you do? A good start is to find an accountant who knows such areas. In this case, please look at how you can change your contractor accountant.

What type of costs do the 24-month rule apply to? 

What type of IT contractor expenses, other contractor expenses, or even employee travelling expenses are we talking about? These include any costs you incur when you travel to a worksite. Therefore, when claiming travel expenses as a contractor, you should check if you can claim these. Such small business travel expenses (UK) will include:

  • Rail fares.
  • Taxi fares.
  • Flights.

24-month rule (HMRC) for contractors & how this works 

What’s a permanent worksite? 

Regarding employee business travel expenses, a permanent site is defined as the only place of work for the employee while working for the employer. In this context, the employer doesn’t mean the client you provide your services to. For a UK contractor, neither does it mean to any agency you work with. Where a UK contractor offers their services via their own company, their company is the employer.

If you’re likely to be at a worksite for a limited duration, e.g., six months or a year, the contractor rules regarding travel won’t affect you, and you can continue claiming travel expenses on taxes. However, if you’re at a worksite for longer than two years or expect to be, there are two factors you must consider as part of the 24-month year rule for contractors.

Which two rules should you consider? 

The two main points which are part of the official rules are as follows:

  • `Expectation’ means the employee knows the position. For example, the employee has signed an extension that keeps them at the contract site for over 24 months.

Furthermore, another item to consider for temporary workplace relief (HMRC) within the second point above is a further 2-year contractor rule. This is known as the 40% rule. Therefore, for the site to be permanent, the contractor or regular employee must spend at least 40% of their working time on average at the worksite. If the time spent is less than 40%, you can claim temporary workplace relief (UK) even if you’ve been or know you’ll be at the worksite longer than two years.

As a limited company contractor, you could potentially have two permanent places of work simultaneously. For instance, you could spend 50% of your time at one worksite and 50% at another. Your UK contractor travel expenses between home and either location wouldn’t be tax-deductible. To clarify, this is because you’d be commuting to two permanent places of work. However, your journeys between the two sites would be tax-deductible.

A further twist to the HMRC travel expenses 24-month rule 

A contractor could’ve been at a worksite for longer than two years and then start a new contract which isn’t connected with their previous contract. Perhaps with a different agency or client but in a similar location. Per HMRC, if the business journey and contractor travel expenses between home and the new site are “substantially the same”, they may not be treated as temporary workplace journeys. Indeed, “substantially the same” is when we compare the new journeys to those for the previous location. If so, HMRC may treat the journeys as if they were to the same site as the previous one. Therefore, if this is so, it’ll make it more likely the HMRC 24-month rule will apply to your `new’ work, too. This rule mightn’t seem logical, and it may even seem unfair. However, this is how it is.

The key point is that HMRC hasn’t defined “substantially the same” and probably never will. Therefore, when considering temporary workplace relief, accommodation, mileage, and other travel costs require careful consideration.

Example of the UK contractor 24-month rule (travel expenses)

HMRC’s example of contractor expenses 24-month rule 

The example HMRC quotes in their literature 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 worksite. In their example, it’s just around the corner. When judging whether journeys are substantially the same or not, that’ll be obvious in most instances. For any non-obvious instance, the contractor must come to their judgement. They must hope this is right or proceed to submit the facts to HMRC to seek their opinion.

When a contractor relocates to a different site in a working context, and the journeys aren’t the same or similar as those of the previous one, the 24 months will start over. As a result, they can claim their employee travel expenses once again.

Keeping a record of your contractor business journeys

When you travel by car to worksites and claim travel on tax, a record of the journeys to and from a worksite in a vehicle provided by you as the contractor should be kept. Indeed, this record should be made by you and should show a mileage log of the journeys. What’s more, the mileage log should be a simple list of the dates when you travel. Further, the mileage list should contain:

  • Where from and where to.
  • How far.
  • When it’s not apparent, the purpose of the journey.

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

HMRC 24-month rule for contractors’ example 

Part 1 

Suppose a contractor provides contract services to a client for nine months. This length of time is less than 24 months. This means that the cost of contractor travel expenses between home and the clients’ worksite is tax-deductible. This claim provides the journey doesn’t fall foul of the expectation of being there for 24 months. Indeed, this is as per the rule above.

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

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

Part 2 

When this renewal is signed, the contractor expects to work at the client’s site for more than 24 months. Therefore, the HMRC 24-month rule applies from when the extension is signed, and the site becomes the contractor’s permanent place of work.

Consequently, from that moment, the cost of journeys between home and the site is no longer tax-deductible. Therefore, journeying to and from the client’s location remains a UK contractor’s allowable expense until the renewal is signed.

Furthermore, what if the renewed contract terminates prematurely? The continuous periods at the client’s site become less than 24 months. In this case, the cost of journeying between home and the site after the renewal’s signing is still not tax-allowable. To explain further here, this is because of the expectation that the position would last beyond 24 months.

24-month rule (HMRC) & how do breaks in attendance work? 

A contractor may have worked at a particular worksite for over 24 months, spending more than 40% of their time there. As a result, they can no longer claim their travel expenses to get to and from the worksite. The contract work may have finished for one reason or another, but the contractor will return to this worksite in the future.

There are no set rules regarding breaks in attendance and when the 24-month clock would start again. Therefore, what can be claimed when someone returns to the same worksite? A break for three or four months will probably be enough to justify a 24-month rule reset once the contractor returns to the site.

Final thoughts 

As shown above, there can be some quite complex rules for you as a UK limited company contractor. This is particularly so when you make claims for your employee travel expenses for business travel. Some of these rules for work-related travel expenses aren’t always very clear or easy to understand. Indeed, you may come across during your UK contracting career. A good contractor accountant will help guide you here. Moreover, they’ll help you navigate the rules around travel expenses for contractors. As a final note, we hope this guidance about the temporary workplace rules and the 24-month rule for contractors has helped clarify these.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: April 6th, 2024 / Categories: Expenses, Member Only Articles (Technical!), Running Your Own Company /

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2 Comments

  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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