In this blog we’re going to delve into a topic that’s crucial for your understanding of travel expenses claims – the 24-month rule. This rule is a key part of HMRC guidelines and can significantly impact your tax relief claims. So, let’s break it down in simple terms.
What is the 24-Month Rule?
The 24-month rule is a guideline set by HMRC that determines whether a workplace is considered temporary or permanent for tax purposes. This classification is essential as it affects your ability to claim travel expenses.
In essence, if you anticipate that your contract at a specific workplace will not exceed 24 months, HMRC considers this a temporary workplace. You can then claim business travel expenses from your home to this place of work. However, if your contract extends beyond 24 months, the workplace is deemed permanent, and you can no longer claim these expenses.
The 24-Month Rule in Practice
Let’s consider a scenario. Suppose you’re working on a contract for 18 months, and it gets extended for another 12 months. In this case, you can claim business travel expenses only up to the 18-month point. From then on, you’re seen as a permanent employee, and the travel expenses are no longer claimable.
The rule also applies if you’re working at various sites with similar travel times, and the contract is expected to last beyond 24 months. In this case, HMRC would still consider it a permanent workplace.
The 40% Rule
Another important aspect to consider is the 40% rule. If more than 40% of your working time in the last 24 months has been at the same workplace, then HMRC deems it a permanent place of work. This applies even if you have breaks in service.
Changing Locations and Clients
What if the location changes, but the client remains the same? The rule applies to the workplace, not the client. However, there must be a significant difference in your commute for the 24 months to restart. For example, if the new location significantly increases your travel cost or significantly changes your journey, it is considered a new workplace, and the 24-month period restarts.
The 24-Month Rule and IR35 Status
It’s important to note that the 24-month rule doesn’t affect your IR35 status. It only applies to expenses. However, if your contract is subject to Supervision, Direction, or Control, you will no longer be able to claim temporary workplace expenses from 6 April 2016. If your contract is caught by IR35, you cannot get tax relief on these expenses.
Final Thoughts
Understanding the 24-month rule is crucial for contractors and freelancers in the UK. It can significantly impact your ability to claim travel expenses and, ultimately, your finances. If you’re unsure about any aspect of this rule, it’s always best to consult with an accountant to ensure you’re not inadvertently making false expense claims.
Remember, the 24-month rule is not something you can avoid or work around by having breaks in your contract. It’s a fundamental part of HMRC guidelines that you need to understand and adhere to.
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