Are you incurring costs travelling to a temporary client site? If so then you need to know about the 24-month rule which will tell you if you can claim for these costs. If you’re a contractor then you’ll understand what a significant difference to your finances claiming expenses can make. However there are strict laws determining what you can and can’t claim and HMRC legislation can be confusing to understand.
So what is the 24-month travel expenses rule? In short, the rule allows contractors to claim expenses for travel between their home & a client’s premises as long as it is considered a ‘temporary workplace’. This means that the contract needs to be 24 months or under and you need to be planning to work in a series of different contracts.
When is a workplace no longer considered ‘temporary’?
- When you have worked there for over 24 months & spent more than 40% of your time there
- When you know the contract will last more than 24 months regardless of whether you know this initially or learn this at a later date
- When you intend to be working there for longer than 24 months
- When you decide to end the contract making said workplace no longer temporary
Once the rule falls into place, the workplace is no longer considered temporary for tax reasons & you’ll no longer be able to claim travel expenses. However other travel between sites is not affected. Please note that the workplace is considered permanent from the point it is assumed the contract is going to exceed 24 months so you have to stop claiming from that point. If the contract is to last more than 24 months (or you know from the start it will be longer), you’ll not be able to claim for the duration of that contract.
If you change location but still work for the same client then you should remember that the rule applies to the workplace & not the client. In order to start over, there must be a decent sized difference in the commute to and from work.
If you return to a workplace that you previously worked at within the last 24 months then the 24-month period starts from the first day of the contract (provided you have spent 40% or more of your time at the workplace within the said time frame). If this is the case then it is considered a permanent workplace and expenses can’t be claimed.
The 40% rule we have discussed applies even if you have breaks in service and HMRC will look at the 24 months as a whole. If you have worked at the same place for 40% or more of your time then the 24-month rule will be triggered.
Worried about what this means for your IR35 status? From April 6th 2016, if your contract is subject to Supervision, Direction or Control then you’ll no longer be able to claim temporary expenses. So if your contract is caught by IR35 then you can’t get tax relief on said expenses. There isn’t really any way of getting round this as you can’t avoid it by having breaks in your contract (because of the 40% rule).
If you are unsure or would like further information, you can contact us by calling 0141 345 2335 or visiting our website: www.kppca.co.uk