Travel Expenses - The 24 Month Rule

Written by Sally Fletcher for planIT, December 27th 2010

Employees who work at a permanent workplace do not qualify to claim travel expenses as this is their "usual" place of work and therefore "ordinary" commuting.   However, employees that work at a temporary workplace do qualify providing they satisfy the rules.

Where travel does qualify, then any subsistence and accommodation expenses related to the travel are also allowable.

Temporary Workplace

A temporary workplace is one where the employee attends for a limited period of time or for a temporary purpose.

As a contractor your travel costs are potentially allowable if the place of work is a temporary workplace.  There are, however, "limited duration" rules that restrict the reimbursement of the expenses.

Limited Duration - The 24 Month Rule

A temporary workplace ceases to be temporary when or if it is expected that the employee will spend 40% or more of their time on a "continuous" basis for 24 months or more.  The workplace will then become a "permanent" one therefore making the commuting to and from home to work, "ordinary" commuting.

It is important to realise here that the expenses cease to be allowable at the point that you become aware that you will be at the temporary site for 24 months or more, not when you reach 24 months.

For example, in January 2010 John started a contract for 9 months.  In October 2010 it was extended for a further 9 months taking him through until June 2011.  If at this stage he accepted a further extension for a further 6 months, the expenses would be non allowable as he became aware that he would be on site for 24 months even though, at that time, he hasn't been.

If John had originally undertaken a contract for 24 months, from the outset, no expenses would be allowable.

Where less than 40% of a workers time is spent at a workplace, then the workplace is classed as "temporary" and falls outside the scope of the 24 month rule.

Continuous periods

A "continuous" period can still be continuous even if there is a break in attendance.  For example John undertook a contract for 12 months with one agency to develop a new HR system.  He then undertakes another project to oversee the rolling out of the original project with a different agency.  Even though John has had a break in the work through different agencies, there is no change in work place and therefore the expense is non allowable.

Change in Workplace

At the time you become aware, or reach 24 months on site and then decide to move to a new contract site; unless there is a "significant" difference to the journey in travel time or cost, HMRC will deem the expenses non-allowable.

There is no precise information, such as exact mileage between locations to easily determine the rules.  Likewise, there is no set time period to re-start the 24 month clock.

This HMRC example shows that where the worker had a break for three months between returning to the same workplace, her travel was disallowed for the second contract as it was expected at the time of commencing that second contract that she would exceed 24 months on the site.

According to HMRC in their guidance EIM32280

"The basic principle is that a change in the location or the boundaries of a workplace will be recognised as a change of workplace where the change has a substantial effect on:

• the journey an employee has to make to get to work and, in particular,
• the cost of that journey.

In practice you should recognise the change of workplace in all cases except where the change has made no significant difference to the commuting journey.

Where these conditions are met the new location is a new workplace even if it is close to the old workplace". 

For example, if you work in Canary Wharf with one client then undertake a new contract three months later with a new client still in Canary Wharf, then there has been no significant change to your travel and it is non allowable.  If you had instead moved to work in the City, the journey would be substantially different and the expenses allowable.  Where Zones are used on the underground around London, there is no substantial increase to the cost of the journey.

Outside of the City, it is not expected that a journey anything less than 10 miles in a different direction from the first workplace would qualify.  Similarly, where there is no specific guidance on the time periods between contracts, it is not expected that any period less than 6 months would satisfy the rules.

Making the best of a worst case scenario

If possible negotiate with your agency / client to work on one contract for no more than 23 months.  This could be, for example, a 12 month initial contract with a further 11 months extension.  Where the contracts ends there, all well and good in satisfying the rules; however, if you undertook a subsequent contract on the same site then HMRC could rightfully disallow the 11 months expenses for "abusing" the rules.

Alternatively arrange to work less than 40% on site, therefore falling outside of the 24 month rule.

This brief is for guidance purposes only.  In all cases we would recommend that you discuss any queries with professional advisors.  planIT Services is a firm of Chartered Accountants regulated by the Institute of Chartered Accountants in England and Wales. Please feel free to contact us if you have any questions relating to this article or other accounting issues affecting contractors.