Contractors' Questions: Will changing office get round the 24-month rule?
Contractor’s Question: I’ve been contracting at the same workplace for over two years and stopped claiming travel costs when I reached the 24-month limit. My client has recently relocated to a new office. Even though my contract with them hasn't changed, does the change in location allow me to start claiming travel expenses again?
Expert’s Answer: Unfortunately, this is one of those areas where HM Revenue & Customs has not set clear rules. In the absence of a tribunal ruling clarifying matters, HMRC’s current interpretation of what constitutes a new location is quite narrow. The current position is that unless the new office is a significant distance from the previous one, then a new claim for travel expenses cannot be made.
The problem here is that what constitutes a ‘significant distance’ has not been set out in case law. HMRC has recently taken the view that if the original office is in London and new office is also in London, then a new claim cannot be made. On the other hand, if, for example, the new office location was in Brighton, then a claim could be made.
It’s worth reiterating how the 24-month rule overlaps with the 40% rule, as both have to be borne in mind for tax purposes. The 24th month is calculated from when you first start travelling to your clients' premises from either your home or office, until the end of the contract, if it is less than 24 months or until you have reason to believe your contract may last over 24 months.
However, it’s not uncommon for a contractor to return to the same workplace but on a different contract within a 24-month period. The 40% rule means that as long as that premises has been your workplace for less than 40% of the time between the original contract start date and the new contract start date, travel expenses can be claimed and can continued to be claimed until the time spent at the workplace exceeds either 24 months or 40%. Contractors can overlook this when renewing contracts, not realising that they may no longer be entitled to claim travel expenses. It is therefore worth factoring in any additional tax that might be payable when weighing a contract extension at the same end user and location against other offers.
The expert was Janice Dent, an accountant at SJD Accountancy.