Mileage and 24 month rule

[northernladuk]

I tried reading the same HMRC document and wished I hadn't as I'm more confused now than I was before!

My situation is that I was working at Location A for 23 months. Then I got a new contract at the opposite end of the country which lasted for just two weeks (don't ask). Then the original client took me back with a new contract back at Location A again. Is a two week break with a different client enough to reset the 24 month rule? And before anyone asks, it's a 130 mile daily commute so the mileage is worth it.

Might actually have opened a new thread rather than using one that is two years old!!

The other rule to consider is the a rolling 40% rule. Two weeks is not enough to bring your time in London to 40%.

I don't know why you are confused. This couldn't be any more black and white.

[Scott C Accountant]

The cost of commuting between home and a permanent place of work is not allowable as a deduction from taxable income. If an employer was to pay or reimburse the cost to the employee the latter would be taxable on that cost, as if it was just another form of remuneration.

The cost of travelling to a temporary place of work is deductible from taxable income. If an employer were to pay or reimburse such cost to the employee the amount paid or reimbursed would not be taxable on the employee.

There is no definitive definition of what is a temporary place of work. Except to say it is not a permanent one.

A permanent one is defined as either:

1) The only place of work of the employee whilst working for the employer, irrespective of the duration of the work at the site. In the context of a contractor providing his or her services via his / her own limited company that company is the employer… in this context employer does not mean either the client to whom services are being provided or any agency via whom the fees for the services are being paid.
2) A place where the employee has or comes to have an expectation of working at the site for a period in excess of two years… this being the reason why the heading above is ‘The two year rule’.

There is a qualification to ‘2’ above. Which is that for the site to be a permanent one, in context, the worker would have to be spending at least 40% of his / her working time at the site.

It is therefore possible to have two permanent places of work at the same time, say 50% of working time at two contemporaneous work sites. The cost of journeys between home and either would not be tax deductible as they would be commuting… but journeys between the two sites would be tax deductible.

Illustration:

Say a contractor contracts to provide services to a client for a nine months period. Nine months, being less than two years, would mean that the cost of travelling between home and the clients’ worksite would be tax deductible, providing that the journeys’ tax allowability is not prevented by ‘1’ above.

Say, at 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 one the Inland Revenue would regard the two contiguous periods to be one, in this context. So, the period working at the site has now become eighteen months. In the context of tax allowability of the cost of journeys between home and worksite it would still be alright to claim for the cost as eighteen months is less than two years.

Then say, at the end of the eighteen months, the client requests the contractor, who accepts, to renew the contract for a further nine months. The total of the contiguous periods at the same worksite has now become twenty-seven months.

From the moment of signing this renewal the contractor has the expectation that the period of time he will be working at the client’s site for more than two years. Therefore, from that moment the site has become the contractor’s permanent place of work.

Consequently from that moment onwards the costs of journeys between home and that site are no longer tax allowable. The costs of journeying to the client’s site up to the moment of signing the renewal, extending the period beyond the two years, remain tax allowable.

Futhermore, should the renewed contact then terminate prematurely such that the contiguous periods at that client’s site become less than two years the cost of journeying between home and that site, after the signing of the renewal lastly mentioned, is still not tax allowable, because of the expectation that the position would have lasted to beyond two years.

[northernladuk]

Futhermore, should the renewed contact then terminate prematurely such that the contiguous periods at that client’s site become less than two years the cost of journeying between home and that site, after the signing of the renewal lastly mentioned, is still not tax allowable, because of the expectation that the position would have lasted to beyond two years.

Interesting. Always wondered about this. Thanks.

[Scott C Accountant]

Ok Northernlad -if you have any other questions please let me know!

[psychocandy]

I always thought you could claim for up to two years regardless. That's what my accountant said

OMG.........

[northernladuk]

OMG.........

LOL. I strongly suspect, as often happens on here, this is not exactly what the accountant. More like said something the contractor didn't understand fully or want to hear. I bet my last dollar the poster doesn't go back and re-adjust his accounts to suit

[Scott C Accountant]

Please read my message above guys! The two year rule is as it is and it is expecation that is the key i.e. as soon as you know (i.e. sign a contract extension) that you are going to be based at a site for longer than two years (and spend more than 40% of your working time there) you can no longer claim for expenses in relation to the site in question. Therefore if you have been at a site for 12 months and have a renewal coming up it is better to renew for 6 or 9 months as opposed to twelve if this is an option and one of the factprs that you are considering when renewing.

[escapeUK]

I always thought you could claim for up to two years regardless. That's what my accountant said

I suspect more people have done and never had a problem than those who have and were caught. But we like to overreact to risk here.

[northernladuk]

I suspect more people have done and never had a problem than those who have and were caught. But we like to overreact to risk here.

It isn't a problem until you get audited and I bet my bottom dollar those who have been caught would advise on the side of caution. If you are going to take this attitude you might as well falsify all your accounting. There is no risk there either..... until you get caught.

The fact your subsistence will stay the same for 2+ years would be like a red rag to a bull. Some things you can hide but I would have thought this of all things would be a piece of cake to spot.

[escapeUK]

The fact your subsistence will stay the same for 2+ years would be like a red rag to a bull. Some things you can hide but I would have thought this of all things would be a piece of cake to spot.

How many audits have you been through and how many years contracting?