Although the 24 month rule has been around since 1998, it still causes confusion for many contractors. Essentially, the 24 month rule allows contractors to claim expenses for travelling from home to their client’s site, provided it’s classed as a ‘temporary workplace’. However, how the rule might affect contractors elsewhere is often muddled, a common misconception being that the 24 month rule has a bearing on IR35 status.
What constitutes a business expense?
Our Head of Tax, Andy Vessey ATT, has previously written a whole article dedicated to the application of business expenses and the 24 month rule which you can read here. However, for the sake of convenience, we’ll give a brief overview.
Travel expenses for employees are tax-deductible when certain conditions are met, for example:
- the employee personally pays their own expenses without reimbursement from their employer;
- the employer reimburses travel expenses paid for by the employee;
- the employer pays the costs directly on the employee’s behalf;
- the cost is met by vouchers, e.g. travel tickets, or credit tokens are provided to the employee; or
- the travel facilities, such as accommodation, are provided directly to the employee.
Travel expenses include not only the actual cost of the business journey but all other associated costs, such as food and accommodation, toll fees, car parking and vehicle hire charges.
Contractors already receive tax relief to allow for overheads and lack of benefits. While they’re not eligible to claim for all of the above as an employee would be, they can claim certain travel expenses under the 24 month rule.
When does the 24 month rule apply for contractors?
As mentioned previously, a contractor can claim travel expenses from their home to the client’s site provided that it’s a ‘temporary workplace’. It’s a temporary workplace when:
- The engagement is for less than 24 months
- The engagement period is unclear (but assumed under 24 months).
Even where an employee attends a workplace regularly, it will still be a temporary workplace if their attendance is for the performance of performing a task of limited duration or another temporary purpose.
Where the employee’s attendance at a workplace is for a period of continuous work which lasts longer than 24 months, this is a permanent workplace and not a temporary one.
24 month rule in practice
Where there is a change in intention, travel costs up to the point of change are allowable, but costs after that date are disallowed. Andy Vessey gives us some context below:
Hassan has worked for his employer for 3 years and is sent to perform f/t duties at a workplace for 28 months. The posting is unexpectedly ended after 18 months. No tax relief is available for the cost of travel between his home and the workplace, because his attendance is expected to exceed 24 months (though in fact, it does not). The workplace is, therefore, a permanent workplace and the journey is ordinary commuting.
Richard has worked for his employer for 3 years. He is sent to perform f/t duties at a workplace for 18 months. After 10 months the posting is extended to 28 months. Tax relief is available for the full cost of travel to and from the workplace during the first 10 months (while his attendance is expected to be for less than 24 months) but not after that (once his attendance is expected to exceed 24 months).
Sarah has worked for her employer for 7 years and is sent to perform f/t duties at a workplace for 28 months. After 10 months the posting is shortened to 18 months. No tax relief is available for the cost of travel to and from the workplace during the first 10 months (while her attendance is expected to exceed 24 months), but tax relief is available for the full cost of travel during the final 8 months (once her attendance is no longer expected to exceed 24 months).
Could the 24 month rule affect a contractor’s IR35 status?
The short answer is no – it’s an entirely different piece of legislation. Provided you’re IR35-compliant, claiming travel expenses under the 24 month rule will not affect your employment status.
Matt Tyler, Larsen Howie’s IR35 Consultancy Manager, explains why many get confused.
“The most common misconception about the 24 month rule would be the belief that the 24 month period actually relates to how long you can be in a single contract before being ‘automatically caught by IR35’,” he says. “Thankfully, this is not true, and the length of a contract has little bearing on your IR35 status other than increasing the notion that you are part and parcel of the client’s organisation. So long as you keep firm boundaries between you and your client’s staff, and work in an IR35-friendly manner, there is no reason you couldn’t remain at a single client for many years.”