Contractors' Questions: Which expenses do I lose if 24 months pass?
Contractor’s Question: In the south of England where I’m on-contract, I rent a room in a house and travel home every second or third weekend. I claim for the room plus flights or mileage for the 960-mile round trip to and from my home. I also claim office mileage to and from the temporary workplace from my rented room, along with subsistence while away from the office. If my contract extends over 24 months, which of these costs will I no longer be able to claim tax relief for due to the 24-month rule?
Expert’s Answer: Assuming that you are spending 40% or more of your working time at this particular client site, you will no longer be able to claim travel or subsistence expenses. This applies to all travel, including between your home and rented accommodation and client site. The removal of tax relief applies from the point it becomes clear your contract will extend beyond the 24-month mark.
After all, HMRC rules state that:
“Where it is expected that the employee will attend a workplace to perform a task of limited duration or for some other temporary purpose for a period of less than 24 months, the workplace will be a temporary workplace from the outset. However, if at a later date circumstances change and the employee is required to attend the workplace for a period that extends beyond 24 months, it will cease being a temporary workplace from the date that the expectation changed.”
The issue of your accommodation costs is slightly more complex and is subject to debate among our team. However, it would be prudent to assume that you would not be able to claim back the cost of your accommodation either.
This is because your decision to rent the room is clearly linked to the fact that your assignment (and workplace) is temporary. In HMRC’s eyes, the workplace becomes permanent as soon as it becomes clear you’re likely to be based there for more than 24 months. It therefore seems reasonable to assume that HMRC would take a dim view of any attempt to continue to claim tax relief on your accommodation costs.
In light of this, you may decide that it’s not worth continuing with the assignment. If you do decide to accept the extension, one way to mitigate the negative impact of the lost tax relief on your take-home pay would be to negotiate an increase in your assignment rate with your agency or end client.
The expert was Jon Cooper, personal account manager at contractor accountancy firm ADVANCE.