As a contractor in the UK, to be able to claim business expenses for tax purposes, your workplace must qualify under HMRC’s guidelines as a temporary workplace. This is where the 24 month rule comes in.
The 24 month rule means that in order to be able to claim business travel expenses, you must anticipate that your temporary contract will not be longer than 24 months. You are then able to claim for business travel expenses from your home to the place of work. This rule also applies to contract extensions. So if you work on a contract for 18 months and the contract is extended for a further 12 months, you cannot claim for business travel expenses after the 18 month point as from then, you are deemed to be a permanent employee of the company. So what is classed as a temporary workplace?
What is classed as a temporary workplace for a contractor?
A temporary workplace in the eyes of HMRC is a place where the contractor travels to solely for the purposes of performing the duties of the contract for a limited period of time. If the contractor anticipates that they will only be travelling to attend the workplace for a period no longer than 24 months, HMRC deem this to be a temporary workplace. If the contractor expects to be working in the same workplace under a contract for more than 24 months, then this is seen by HMRC as a permanent workplace. Because of this rule, the expected length of the contract is just as vital as the actual time that the contractor is attending that particular workplace.
But the 24 month rule doesn’t just relate to a single workplace on one contact. If the contractor is working at various sites and premises that are relatively similar in terms of travel time, and the contract is expected to go on beyond 24 months, then this would still be deemed a permanent workplace by HMRC.
Many contractors return to the same workplace after a period of not working with a particular company. If the contractor returns to the same workplace, the rule is that if more than 40% of the contractor’s working time in the last 24 months has been at the same workplace, then the workplace is deemed a permanent place of work by HMRC.
If the contractor only intends on undertaking a single task while working on a contract in a certain workplace, again, HMRC will classify this as a permanent place of work.
If you are deemed as a contractor to be working at a permanent workplace, you are unable to claim travel expenses for that contract. In this case it may be possible to break up the contract into different tasks in order to be able to claim travel expenses so long as the contract is not expected to exceed the 24 month period.
If you are unsure as to whether you are able to claim expenses for this purpose, it is always best to check with an adviser to ensure that you are not fined for falsifying expenses claims.