What is the 24 month rule for contractors? What’s more, how does affect your ability to claim tax relief for employee travel expenses? This applies when you work through your own contractor limited company or work as a sole trader. Indeed, when you’re a contractor, HMRC rules need considering respect of your contractor travel costs. Basically, many will ask can contractors claim travel expenses? Moreover, they’ll ask if they can continue claiming travel expenses from home to work through a UK contracting role. In this guide, we’ll look at the 24-month rule for contractors in detail. What’s more, we’ll investigate how this works when you run your own business.
Therefore, when we consider travel charges for contractors, how can you claim travel expenses on taxes? If you are a limited company contractor who runs your own company, are you aware of the current rules? When you’re contracting and incur business travel expenses, HMRC temporary workplace rules set out what you can and cannot claim. Therefore, let’s take a look at what is the 24-month rule (HMRC). In addition, let’s look at how this affects your ability to claim tax relief on travel expenses and subsistence costs.
When we consider can a contractor claim travel expenses, they can if these are genuine business costs. Next, when you are claiming travel expenses as a contractor, these will make a difference to your overall take-home pay. This is indeed true for your contractor travel expenses when you commute a long distance to your place of work. When you’re claiming travel expenses to work each time you travel there and back is of course the best outcome. However, when claiming travel expenses, HMRC have some temporary workplace rules. These will need considering before you can make a claim.
In general, the cost of work travel expenses for UK contractors and regular employees in relation to commuting between home and a permanent workplace isn’t a business expense. As a result, you are unable to claim this against tax through your contracting business. As a self-employed person or an employee, you cannot claim these on your tax return either. If an employer pays or reimburses the cost to the employee, this’ll 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 are their travel from home to work no longer tax-deductible? In this guide, we’ll look into the existing rules from HMRC (business travel expenses) in detail. We’ll also explain how these work for you as a contractor.
There are many common questions from contractors and workers alike, regarding when they can claim work travel expenses. Indeed, such questions on when are travel expenses taxable or tax deductible, will include:
- Can you claim travel expenses for work?
- Are business travel expenses taxable?
- How do I claim travel expenses on taxes?
- When can I claim work travel expenses?
- If I am claiming travel expenses for work, what are the rules?
In this guide, we will take a good look at the above. We’ll consider when you can claim work travel costs and what to bear in mind when you do this.
The temporary workplace rules and the 24-month rule (HMRC) for contractors
Please take note that the cost when you 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 is not taxable. In this case, when you are an IT contractor being paid for travel by your company, the business will also receive temporary workplace tax relief on your contractor travel expenses via its 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.
The rules which cover a temporary workplace are not a straightforward subject for limited company contractors. Therefore, if your accountant does not know the rules what should you do? A good start will be to find an accountant who has knowledge in such areas. In this case, please look at how you can change your contractor accountant.
The types of costs that the 24-month rule (HMRC) will apply to
What type of IT contractor expenses, other contractor expenses or even employee travel expenses we are talking about? In effect, these include any costs you incur when you travel to a worksite. Therefore, when you are claiming travel expenses as a contractor, you should to check if you can claim these. Such small business travel expenses (UK) will include:
What to consider in respect of the 24-month rule (HMRC) for contractors
What is a permanent worksite?
When it comes to 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 does not mean the client you provide your services. For a UK contractor, neither does it mean to any agency via whom you do your work. Where a UK contractor provides their services via their own company, their company is the employer.
If you’re likely to be at a worksite for limited duration e.g., six months or a year, the contractor rules in respect of travel will not affect you and you are able to continue claiming travel expenses on taxes. However, if you may be at a worksite for longer than two years or you expect to be, there are two factors that you have to consider as part of the temporary workplace rules for contractors.
The two rules to consider
- A site where the employee has come to expect to work for over 24 months. It is the reason why the heading above is ‘The contractor 24 month rule.’
- `Expectation’ means that the employee knows the position. For example, the employee has signed a contract extension that bases them at that contract site for longer than 24 months.
Furthermore, another item to consider in relation to 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 normal employee spends at least 40% of their working time on average at the worksite. If the time spent is less than 40%, you are able to claim temporary workplace relief (UK).
As a limited company contractor, you could potentially have two permanent places of work simultaneously. For instance, you could be spending 50% of your working time at one worksite and 50% at another site. Your UK contractor travel expenses between home and either location 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 HMRC travel expenses 24-month rule
A contractor could take on a contract which is not in connection with their previous contract. Perhaps with a different agency or even with a different client. In this case, it turns out that the contractor travel expenses between home and the new site are “substantially the same. Indeed, this is when we compare them to those to and from the previous location. If this is so, HM Revenue & Customs (HMRC) will treat the journeys as if they were to the same site as the previous one. Therefore, if this is the scenario it will make it more likely that the HMRC 24-month rule will apply to your `new’ work too. This rule might not seem logical, and it may even seem unfair. However, this is how it is.
A key point to note is HMRC has not, to date, and probably never will define what “substantially the same” means. Therefore, when it comes to considering temporary workplace relief, accommodation, mileage and other travel costs will need careful consideration.
An example of the UK contractor 24 month rule (travel expenses)
HMRC’s example for the contractor expenses 24-month rule
The example which 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 worksite. In their example, it is just around the corner. When judging whether journeys are substantially the same or not, this will be obvious in most instances. For any non-obvious instance, the contractor must come to their judgement. Basically, they will then have to 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 that are not the same as those of the previous one, the 24 months will start over. As a result, they will be able to claim for their employee travel expenses once again.
Keeping a record
When you travel by car to worksites and are claiming travel on tax, a record for claims for miles which you travel 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 be one that shows a mileage log of the journeys. What’s more, the mileage log needs to be a simple list of the dates when you travel. Further, the mileage list should also contain:
- When it is not apparent, the purpose of the journey.
Whenever possible, there should be a record of all other forms of travel in relation to 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 any limited company subsistence expenses should be backed up by tickets, receipts, and invoices. Without such third-party proof, HMRC might reject the claim.
Illustration of the HMRC 24-month rule for contractors
Illustration (part 1)
Let’s suppose a contractor provides contract services to a client for nine months. This length of time is less than 24 months. It would mean that the cost of contractor travel expenses between home and the clients’ worksite will be tax-deductible. This claim provides 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, HMRC would regard the two continuous periods as one in this context. Therefore, the period 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 us consider the cost of journeys between home and the worksite again. 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.
Illustration (part 2)
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, the HMRC 24-month rule applies from that moment onwards, and the site has become the contractor’s permanent place of work.
Consequently, from that moment, the cost of journeys between home and that site are no longer tax-deductible. Therefore, to clarify, the expenses of journeying to the client’s location remain as UK contractor allowable expenses up to the moment of signing the renewal.
Furthermore, what if the renewed contract terminates prematurely? 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 renewal’s signing is still not tax allowable. To explain further here, this is because of the expectation that the position would have lasted beyond 24 months.
The 24-month rule (HMRC) -breaks in attendance
A contractor may have worked at a particular worksite for more than 24 months. In addition, they spend more than 40% of their time there. As a result, they can no longer claim their travel expenses to get to and from that worksite. The contract work may finish for one reason or another. However, the contractor returns to this worksite in the future.
There are no set rules with regard to breaks in attendance and when the 24-month clock would start again. Therefore, what can be claimed when someone returns to the same worksite? Basically, 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.
As shown above, there can be some very complex rules for you as a UK limited company contractor. This is particularly so when you make your employee travel expenses claims for business travel. Some of these rules for work-related travel expenses are not 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. What’s more, they will help you navigate the rules around travel expenses for contractors. As a final note, we hope this guidance with regard to the temporary workplace rules and 24-month rule for contractors has helped to make these a little clearer.
Link to Contractor Advice UK group on