expenses - the 24 month rule, a different question

[Dark Black]

I haven't seen this scenario discussed before so here goes...

I had several contracts (on site) with a client over a 2 year period, 16 months in total with gaps in between. The last contract ended virtually 24 months to the day that I started my first contract with them. I was claiming travel expenses throughout my time with this client. If I had continued with that client past that date I would of course have stopped claiming travel expenses.

10 months later I started another contract with the same client, at the same site as before. I asked our accountant whether this was a long enough break to enable me to claim expenses again - now their response was that I needed to have had a break for at least 60% of the time spent there.

So 60% of 16 months comes out at 9.6 months which is (just) less than the 10 months gap. However my accountant's view is that they don't think that I'd have a very strong case if HMRC looked into it.

Since it's obviously borderline, I was wondering if anybody here (preferably other accountants) had any view on this?

[northernladuk]

My view is is that they don't think that I'd have a very strong case if HMRC looked into it.

That's because someone who does this for a living has advised it and I don't know much better.

Rules maybe rules with the HMRC but they are there for a reason to make sure people don't try and abuse the system. Although it may say 10 months that is a rule of thumb as to what is reasonable. 9.6 is pushing it very hard. You can argue it is under 10 minths but you can't really well argue you are not doing what they are trying to clamp down on.

Your call I think this one. How much is worth a good nights sleep at night?

[Clare@InTouch]

In my view it would be hard to argue any relationship between the two contracts unless there was an expectation at the time you left that the second contract would be offered, or the work is a direct continuation of where you left off 10 months ago.

[northernladuk]

In my view it would be hard to argue any relationship between the two contracts unless there was an expectation at the time you left that the second contract would be offered, or the work is a direct continuation of where you left off 10 months ago.

But I thought the 24 month rule was there with the assumption that if you were going to work in an area for this length of time it is not unreasonable for someone to move there. It has nothing to do with contracts or the actual client. It is geographic in nature arguing contracts won't matter. If you work in that area for so long most people would move there so they can stop you claiming expenses.

[Moscow Mule]

What were you doing in the 10 months you weren't there?

[LisaContractorUmbrella]

The 40% rule applies to the 24 months preceeding the start of the new contract. If your new contract started 1/4/2010 you will need to work out how many months were spent at the client site between this date and 31/3/2008; if it is more than 40% of the time then the 24 month rule would apply

[Clare@InTouch]

But I thought the 24 month rule was there with the assumption that if you were going to work in an area for this length of time it is not unreasonable for someone to move there. It has nothing to do with contracts or the actual client. It is geographic in nature arguing contracts won't matter. If you work in that area for so long most people would move there so they can stop you claiming expenses.

Sorry - half answering and not entirely the question that was asked.

The 24 month rule does go on location. In this case I'm taking it that the 10 month gap was spent totally elsewhere...? As Lisa says you need to work out how your time was split in the 24 months you were there, and how much therefore falls into the 24 month window that you're now in - you can then figure out if you're under or over the 40%.

[THEPUMA]

I'm not sure I agree. See 3.12 of http://www.hmrc.gov.uk/helpsheets/490-chapter3.pdf. The word continuous is used repeatedly. I don't think any sensible interpretation of the word continuous would cover your circumstances.

As an accountant defending such a case against HMRC, I would be gutted if I lost.

PUMA

[centurian]

I'm not sure I agree. See 3.12 of http://www.hmrc.gov.uk/helpsheets/490-chapter3.pdf. The word continuous is used repeatedly. I don't think any sensible interpretation of the word continuous would cover your circumstances.

As an accountant defending such a case against HMRC, I would be gutted if I lost.

Read section 3.16

"A period of continuous work can remain continuous even where there is a break in attendance."

In particular notice the last example (Etaoin). Not quite the same as our example as it refers to knowing about the break at the outset, but I think the word "continous" in the HMRC dictionary has a different meaning.

Glad you're not my accountant

[centurian]

Also notice the Earnest example which said basically said because he was being crafty, then he couldn't claim - even though he was within 24 months every time.

Am I correct in thinking that the 24 month "rule" is really just a "guideline" for the overarching issue of allowable travelling expenses...

Much like the 90-day "rule" for expats, where some chap got nailed for millions as HMRC argued that he was still resident in the UK even though he had fully complied with the 90 day "rule" for the past 20 years.