Contractors – 24 month rule – what is it?

The 24 month rule is an HMRC rule which applies to Limited companies that claim “Business Travel” expenses for attending a qualifying workplace (a workplace which is seen to be temporary). Business travel costs can be defined as travel, accommodation and subsistence costs.The rules allow you to only make expense claims for up to a maximum period of 24 months. From the day that you become aware that your contract will last for longer than 24 months, you can no longer claim business travel expenses. Please see the examples below (subject to 40% rules explained later):

1. You sign at the outset a new contract for 30 months.

No business travel expenses can be claimed

2. You sign a new contract for 20 months. During month 14 you are advised that the contract will be extended for a further 10 months, i.e. 30 months in total.

You can claim business travel expenses from the start of your contract until month 14. If you reasonably expected that the contract would exceed 24 months before month 14, you can only claim expenses up to this date. You cannot claim travel expenses after month 14.

3. You are provided with a temporary contract for 3 months, and this keeps getting renewed.

This is a grey area and boils downs to expectations.
If there is uncertainty about whether the contract will extend beyond 24 months, business travel claims are allowed up until the date you anticipate the contract will go beyond 24 months.
If however from day 1 the contractor has reasonable expectation that rolling contract will continue beyond 24 months, then no business travel claims are allowed.

Should the contract exceed 24 months, there is still potential to claim travel expenses, but subject to the contractor working less than 40% of their time at that workplace. For example, if you have a contract lasting 60 months, but you only spend 25% of your time at that workplace (with remaining 75% on other contracts at different workplaces), then business travel expenses can continue to be claimed. It should be noted that business travel claims are not allowed if you have a permanent workplace (i.e. not time defined) despite attendance being less than 40%.

There is however an added complication. If there is a change in workplace that does not have a significant impact on your journey to work, these HMRC rules still apply. For example, if the journey is to the same geographical area (but different workplace)with similar journey times, the 24 month rule still applies. This can be explained with the following example:

An IT contractor travels from Dundee to Manchester for a contract with a bank for 18 months. As the contract is less than 24 months business travel expenses will be allowable.
In month 10, the IT contractor secures another 12 month contract with a competitor bank nearby the existing workplace, starting after the first contract expires. Despite a change in workplace, the journey is not too dissimilar, and as such the combined contract breaches 24 months, and no business travel expenses will be allowed from month 10.

In summary, business travel claims are restricted to 24 months but only if it was anticipated that the contract would be less than 24 months. Claims beyond 24 months are only allowed if overall time spent is less than 40% of your time. Care needs to be taken for any change in contracts but where the journey to the workplace has not significantly altered.