If you’re a contractor, you are likely to incur expenses between your home and your temporary work site. You may be entitled to claim these travel expenses back, as long as you meet the necessary requirements. For many contractors, this can make all the difference to your finances, so gaining a deeper understanding of this issue is important.
At ICS, we aim to help you navigate the legislation that surrounds the claiming of travel expenses as a contractor and learn whether or not you are eligible to make a successful claim by focusing on the 24-month rule.
What Is the 24-Month Rule?
This rule allows travel and subsistence expenses to be claimed from a contractor’s home to their place of business, as long as it’s classified as a temporary workplace.
In order for your workplace to be considered temporary, your job should be contracted for less than 24 months or for an unknown period still assumed to be under these two years. It is classified as permanent if it is reasonable to assume that your contract will exceed the 24 months. This time period starts from the moment you, as the contractor, start travelling to a specific site for your job.
These rules are relevant where you spend, or are expected to spend, more than 40% of your time at the location.
Can You Claim Travel Expenses?
If you meet the conditions, you are likely eligible to claim travel and subsistence expenses. You can claim them as a director of your own limited company. This ability to claim expenses through the company reduces tax liabilities for their company (by reducing taxable profits) and for them as director/shareholder (by reducing the extraction via taxable dividends).
How Contract Changes Affect the 24-Month Rule
When it comes to contract extensions, timings can be crucial. Following work at a particular site for 12 months, if your extension is 12 months then you will not be able to claim travel costs. If this extension is 11 months, then lucrative expenses can be offset.
The rules apply to locations, not clients, so a change in location can mean some travel is allowable, others not. A separate site is defined by being substantially different, meaning that movement within one large site is not likely to qualify as a change.
You might not be constantly travelling to a particular site during these two years. If this is the case and there’s a break in the travel you do, the 24-month clock doesn’t reset automatically. The two years are reviewed and, if more than 40% of time was spent at a site, then you won’t be able to claim these travel expenses. A break of 15 months or more would mean that full-time attendance at a site would be discounted.
There can often be some confusion surrounding the ability to claim expenses and IR35. The 24-month rule is not connected to IR35 and the status of an employee is not affected by the ability to claim expenses. The ability of an agency to pay a contractor’s limited company travel expenses is also unaffected, as this is a private arrangement between the personal service company and the agency.
If you would like more information about claiming travel expenses as a contractor or IR35 advice, don’t hesitate to contact us today on 0800 288 9015. Meanwhile, you can browse our website to learn more about the services or use our contractor tax calculator to calculate your take-home pay.