The 24 Month Rule in a nutshell

[tractor]

...

My current contract is up in March, if I get offered an extension beyond June, then it's going to take me over the 24 months.

I've ran this past my accountant, and he confirms my understanding but I've seen similar questions asked here before but never answered so I thought I would post this for comments or clarity if anyone is in a similar situation or believes I've got this wrong.


Let's say my annual travel expenses are £5k. So far, my ltd has been paying that and has claimed tax relief on it. Meaning no cost to me personally, and effectively a £4k cost to my ltd, rather than £5k (the tax saving bit).

It's only the tax saving bit that is affected by the 24 month rule so I am going to continue to allow my ltd to pay the £5k as a cost of doing business. This means STILL no cost to me personally but the full £5k cost to my ltd.

As my ltd pays me a tax free salary and dividends up to (not into) the higher rate limit, I won't have to take an extra £5k of dividends at the higher rate to cover the £5k cost of travel.

As this is completely work related travel there is no BIK due for me, personally, on this £5k.


Is this the correct approach to take under these circumstances?

Not sure but do not forget that the allowances end at the point you become aware that you will breach the 24 month limit.

[JRCT]

My current contract is up in March, if I get offered an extension beyond June, then it's going to take me over the 24 months.

I've ran this past my accountant, and he confirms my understanding but I've seen similar questions asked here before but never answered so I thought I would post this for comments or clarity if anyone is in a similar situation or believes I've got this wrong.


Let's say my annual travel expenses are £5k. So far, my ltd has been paying that and has claimed tax relief on it. Meaning no cost to me personally, and effectively a £4k cost to my ltd, rather than £5k (the tax saving bit).

It's only the tax saving bit that is affected by the 24 month rule so I am going to continue to allow my ltd to pay the £5k as a cost of doing business. This means STILL no cost to me personally but the full £5k cost to my ltd.

As my ltd pays me a tax free salary and dividends up to (not into) the higher rate limit, I won't have to take an extra £5k of dividends at the higher rate to cover the £5k cost of travel.

As this is completely work related travel there is no BIK due for me, personally, on this £5k.


Is this the correct approach to take under these circumstances?

[Contreras]

Precisely. The only continuing allowable expense is from your new permanent place of work to some other client location on business,

Agree.

and even then, strictly speaking, you should deduct the normal daily journey distance.

That's a myth.

All in all, I prefer my original version

Well you would. Opinions which challenge the established view are welcome on this forum where supported by facts, otherwise it's hearsay.

[LisaContractorUmbrella]

That would be my understanding of the rule, but I didn't get that impression from Forbes Young's post - it seemed to imply that you could claim the travel to a hotel and then just not claim the journey from hotel to work.

Which (to be blunt) sounds like a load of bollocks to me.

Yep I agree

[TheFaQQer]

That wouldn't be right surely - if accommodation is not allowable after 2 years then the associated travel wouldn't be either - subsistence is also affected by the 24 month rule for the same reason

That would be my understanding of the rule, but I didn't get that impression from Forbes Young's post - it seemed to imply that you could claim the travel to a hotel and then just not claim the journey from hotel to work.

Which (to be blunt) sounds like a load of bollocks to me.

[LisaContractorUmbrella]

Precisely. The only continuing allowable expense is from your new permanent place of work to some other client location on business, and even then, strictly speaking, you should deduct the normal daily journey distance.

All in all, I prefer my original version

Much better yes

[malvolio]

That wouldn't be right surely - if accommodation is not allowable after 2 years then the associated travel wouldn't be either - subsistence is also affected by the 24 month rule for the same reason

Precisely. The only continuing allowable expense is from your new permanent place of work to some other client location on business, and even then, strictly speaking, you should deduct the normal daily journey distance.

All in all, I prefer my original version

[LisaContractorUmbrella]

Are you suggesting that no matter how long the engagement, you could claim home to hotel anyway, and hotel to client site for up to the point where you know that it will be more than two years?

That wouldn't be right surely - if accommodation is not allowable after 2 years then the associated travel wouldn't be either - subsistence is also affected by the 24 month rule for the same reason

[TheFaQQer]

Q: What if I stay in a hotel?

A: Home to the site is different from hotel to the site if a time of greater than 40% is involved after 24 months. So after 2 years in my opinion you would still be able to claim the cost of the journey to and from your hotel to the client site and to and from home to the hotel.
This rule is modified where the employee works at a succession of workplaces but the change of workplace has no substantial effect on the employee's journey to work. All such workplaces are treated as the same workplace for the purpose of the legislation, see EIM32280 and example EIM32089. The guidance also confirms that, for the purposes of proving that a contractor’s workplace is their permanent workplace, HMRC can “ignore a change of workplace if that change does not have any substantial effect on the employee's journey to work.

Are you suggesting that no matter how long the engagement, you could claim home to hotel anyway, and hotel to client site for up to the point where you know that it will be more than two years?

[Forbes Young]

Two Year Rule & related issues

Q: Is Travel and the two year rule a completely different issue to IR35?

A: Yes, it is completely different Legislation. Travel can still be claimed from your ltd company even though you operate inside the IR35 Legislation.

Q: Does this Rule also cover subsistence?

A: No. It is specifically for travel to a main work location. The whole basis of this legislation is to give workers some relief when working at a temporary workplace. Beyond 24 months, this workplace is no longer temporary but classed as permanent, unless less than 40% of the time is spent on that specific workplace.

Q: How long can a worker claim tax allowable travel expenses?

A: A company worker can only claim tax allowable travel expenses for a maximum of 2 years when working on the same site when 40% or more of the time worked is spent on this same client site (nb not the same client). HMRC EIM32080 : “The test is whether the employee has spent, or is likely to spend, 40% or more of his or her working time at that particular workplace over a period that lasts, or is likely to last, more than 24 months. Where that is the case the workplace is not a temporary workplace and so it is a permanent workplace. Travel between that place and home will be ordinary commuting and so is not deductible.”

Q: What if I stay in a hotel?

A: Home to the site is different from hotel to the site if a time of greater than 40% is involved after 24 months. So after 2 years in my opinion you would still be able to claim the cost of the journey to and from your hotel to the client site and to and from home to the hotel.
This rule is modified where the employee works at a succession of workplaces but the change of workplace has no substantial effect on the employee's journey to work. All such workplaces are treated as the same workplace for the purpose of the legislation, see EIM32280 and example EIM32089. The guidance also confirms that, for the purposes of proving that a contractor’s workplace is their permanent workplace, HMRC can “ignore a change of workplace if that change does not have any substantial effect on the employee's journey to work.

Q: What about travel between different clients sites?

A: Travel between different client sites is always allowable.

40% is after the 2 years has elapsed. HMRC’s guidelines above state that “The test is whether the employee has spent, or is likely to spend, 40% or more of his or her working time at that particular workplace over a period that lasts, or is likely to last, more than 24 months”. For the purposes of this legislation you are classed as an “employee” (even though you may not technically be an employee if you are owner/director/worker of your own ltd company). With regards to records, I would advise you to keep comprehensive records of where you are based after the 24 month period has ended as the onus will be on you to convince an HMRC Inspector that you have spent less than 40% of your work time at a given client site.

Q: Can I claim tax allowable travel for up to 2 years even though the contract my company has entered into with its client lasts for two and a half years?

A: No. As soon as the contract/series of contracts exceeds 2 years then no tax allowable travel expenses are claimable unless less than 40% of your working time is spent there over a given period.

Q: What does “workplace rule” mean?

A: Remember this is a workplace rule (not working for the same client rule). HMRC would consider it to be the same workplace if it were in the same neighbourhood eg you couldn’t just move to a different building a few hundred meters away and claim it to be a different workplace. As soon as the contract exceeds 2 years and you are still working at the same place, it is no longer classed as a temporary workplace unless less than 40% of your working time is spent there over a given period. Similarly, if you change client but remain in the same building, then the 24 month rule is not reset.

Q: What if I want more information from HMRC?

A: This can be found online at EIM32080 - Travel expenses: travel for necessary attendance: definitions: temporary workplace: limited duration, the 24 month rule HMRC has an example of an IT contractor working in London’s financial district. This is discussed in an HMRC manual, which is designed to provide guidance to its own inspectors on how to apply the travel expenses rules legislation – Section 339(7) of the Income Tax (Earnings and Pensions) Act 2003.

Q: What about other related issues?

A:
1. Business miles using own car- in each tax year (6 April to 5 April) each person can claim 45p per mile as the maximum allowable for first 10,000 miles (25p per mile thereafter). 2p per mile can also be reclaimed for VAT if you/your company is not on the VAT Flat Rate Scheme.
2. Mileage log for each journey should always be maintained in case HMRC ask for detail of journeys.
3. When working away from home on business a worker can claim £5 tax/NI free per night from the company for incidental expenses (no receipts needed) in addition to subsistence costs (£10 if working outside the UK).
4. Note that the above doesn’t cover rent costs/hotel costs where accommodation is rented near the project of work because your home is too far away to commute. Accommodation and receipted evening meals can continue to be claimed via your company as a tax allowable expense.