Travel Expenses: The 24-Month Rule Explained

Last week we discussed what HMRC class as an ‘allowable expense’. We stressed the importance that expenses must be ‘wholly, exclusively and necessarily’ incurred for the use by the business.

This week we’re continuing with the same theme and look at the 24-month rule that applies to travel expenses.

N.B.: This guidance specifically relates to contractors who are working outside of IR35. If you are looking for information relating to working inside IR35, please give us a call on 01962 867550.

Claiming travel costs

The costs you can claim for as a travel expense would be for travel between your home and a temporary place of work. It is likely that your home address will be the business address of your limited company. If you have a separate office for your limited company, you would claim for travel expenses between this office address and the temporary contracting address.

The types of transport included in travel expenses include:

• Public transport (bus, train, tram, ferry)
• Private transport (taxi, private car)
• Airfares

What is a temporary address?

HMRC class a temporary address as a location where you expect to work for less than 24 months.

The 24-month rule

It is often the case that you take on a contract for an initial period, and then the contract gets extended. Great news for you, as you don’t have to worry about finding another contract. However, if this does happen, you must be aware of the 24-month rule.

The 24-month rule states that if you expect to work at a temporary workplace for longer than 24 months, it can no longer be classed as a temporary working address and you won’t be able to claim for travel expenses.

The important point to note is that you can no longer claim for travel expenses from the moment you are made aware that your contract at the temporary working address will exceed 24 months.

For example, you’ve been contracting for a client for 20 months. The contract is extended by a further 12 months. You cannot claim travel expenses past the 20 months, as this is the time you were made aware that the contract will exceed 24 months.

Location

It’s important that you factor in the location of your contracts into the 24-month rule. If the cost of the journey and the journey itself for a new contract, are similar to previous a contract, HMRC will take the view that this is the same location for purposes of the travel rules and you can’t claim for travel expenses.

This rule will apply even if you have gaps in your contract. For your workplace to count as a separate place of work, there must be a gap and it must include a period of working at a different site in-between. To determine the length of the gap HMRC would apply the 40% rule and look at whether you had spent more than 40% of your time at that work place in the last 24 months.

For instance, you contract at a site for 15 months. The contract ends and you to go to work on another contract for six months. After this, you return to your original contract. This will still count as a period of the 24 months as you would have spent more than 40% of your time at that location in the last 24 months and you won’t be able to claim for travel expenses.

Need a hand?

If you need further clarification on the 24-month rule or need guidance on what you claim as a business expense, get in touch with us via our website or call us on 01962 867550.