The 24 month rule

Keeping on top of all of your business’s expenses is important for contractors in every industry. Contracting is an industry under fire with a gradual erosion in the number of tax benefits you can take advantage of every year. Work with Panthera to make sure you claim back everything you can to increase your take home pay.

What is the 24 month rule?

Travel expenses often make up a large chunk of the money you need to spend on servicing your contract client. You can claim against those travel expenses to lower your tax bill. However, if you travel to the same site time and time again, something called the 24 month rule applies.

The 24 month rule means that you cannot claim business travel expenses from commuting to and from a temporary workplace if you work at that site for more than 24 months. Although this sounds easy to get your head around, you need to remember – HMRC are involved, it’s never that simple.

What constitutes as a temporary workplace? When does the 24 month counter reset? Who is responsible for making sure that the 24 month rule is followed?

HMRC defines a temporary workplace as either:

• An engagement that lasts for under 2 years, or,
• An unknown engagement period that is assumed to be under 2 years.

It is worth mentioning that you cannot claim any business travel expenses as soon as you know that your engagement will surpass the 24 month threshold. For example, at the end of an 18 month contract, if you are offered a 12 month extension, you will no longer be able to claim travel expenses.

The 24 month rule will apply as soon as (or as soon as you anticipate to) spend more than 40% of your time at any given location within a 2 year period.

How does the 24 month rule affect your business?

If you don’t account for the 24 month rule later only to realise that it applies to you, you could be stung with much lower reclaimable travel expenses than you first thought.

If you believe that it’s likely that you’ll be caught out by the 24 month rule, you should consider factoring the price of your commute into the prices you charge your customers.

Can you get around the rule?

In order for the 24 month rule to be negated when you’re working for the same client, you will need to make “significant changes” to your daily commute. In classic HMRC tradition, this is an incredibly vague statement that could have serious repercussions on the amount of tax you have to pay if you get it wrong.

You have to make a judgement based on your own personal circumstances. If you have the option to work somewhere 5 minutes’ drive away from your previous location, that probably won’t qualify as a significant change. However, if you work 25 miles in the opposite direction, this should be enough to claim a significant change has been made.

The 24 month rule is specific to travel costs (specifically the destination) and not to the clients that you are working for. This means that you could work for a different client in the same location and you might still fall victim to the ruling.

Accounting for contractors with Panthera

If you are a contractor and you’re looking for advice on how to claim business travel expenses, get in touch with our team. We can help you understand whether the 24 month rule applies to you, while working to lower your tax ill in the process. For more information, call us on 01235 768 561 or drop us an email to enquiries@pantheraaccounting.com – we’ll be back in touch with you shortly.