Contractors' Questions: Can I backdate travel expenses?

Contractor’s Question: I’ve worked as a contractor for the same company for two-and-a-half years, initially through an umbrella company but as a limited company latterly -- from last April. I’ve not claimed any expenses since then, believing I wasn’t entitled. But am I entitled to claim for petrol costs to and from work and backdate it? I’ve not kept all receipts.

Expert’s Answer: You are able to claim tax relief on travel expenses (e.g. business mileage) for travel back and to the temporary site where you performed your work. This means that as long as your attendance at this site is no longer than 24 months and you did not expect it to be for longer than this period (i.e. you have not entered into a contract which takes you beyond 24 months at the same worksite, either in isolation or after extensions), then your mileage expenses are allowable for tax relief.

The 24-month rule is relevant even if your business structure changes i.e. the 24-month clock starts when you are first at your temporary site even if this was when you were employed by the umbrella company, so you will need to factor in that period if relevant.

Therefore, assuming you meet the 24-month rule your mileage claims could be reimbursed to you via your company tax-free. However, once 24 months has expired (or you expect to be there for more than 24 months), this must cease.

There is an important caveat with regards to your claims -- the need for keeping accurate records in case of HMRC interest. Retaining receipts is best practise as it will satisfy HMRC that you have incurred the expense. The lack of receipts in respect of mileage claims should not pose a significant issue providing you have other evidence to prove that you have incurred the expense. This could include diary entries, mileage logs, payslips, timesheets etc. that evidenced your attendance on site.

I am not sure if you are standard rated, in the flat rate scheme or not VAT registered but please be aware that you do require receipts to enable you to claim the VAT back.

In conclusion, the above scenario identifies the difficulties facing contractors who are attempting to claim expenses retrospectively and also highlights the necessity of keeping up-to-date and accurate mileage logs and receipts to evidence expenditure.

On a separate note, there is an element of risk in moving from employed to contractor status and I would suggest an IR35 review for added comfort, as the rules on expenses are different if your assignment is caught by IR35.

The expert was Matt Fryer, head of compliance at contractor accountancy firm Brookson.