Contractors' Questions: Is this a workaround to the 24-month rule?

Contractor’s Question: I’m aware there’s effectively a two-year 'limit' on contracting at temporary workplaces for expenses purposes, so I'm looking at returning to a company after a discreet gap of three months out.

Would this gap still count towards the two-year time period if I subsequently take another contract with the same company and, if not, how long a gap would be sufficient to not count? Please note; I envisage me terminating one contract (on a time basis), never extending a contract then seeking a new contract with the original client.

Expert’s Answer: This may be a case of a little knowledge being a bad thing. It would appear that you are engineering your contracting pattern around what is more commonly known as the ’24-month’ rule. This rule is HMRC’s attempt at trying to differentiate between what is a ‘temporary’ workplace and a ‘permanent’ workplace; the significance being that travel to and from (and subsistence while there) the former is currently treated an allowable expense. It may be worth you reading up on the HMRC guidance on the rule and the various other links within that guidance for a fuller understanding.

Unfortunately for your circumstances, there is no statutory definition of ‘how long between assignments is sufficient’, as each case must be viewed on its merits. But a three-month pause, and then a return to exactly the same workplace, is unlikely to impress HMRC. 

In addition, you need to be aware of the “40%” rule which trumps the 24-month rule – where more than 40% of your work time is spent at the same site; then this site will be treated for tax purposes as a permanent site. It is this rule which prevents agency staff from claiming expenses because HMRC treats each agency assignment as a totally separate and discrete assignment to tax purposes.

However, you should be aware that all this will change from April 2016.  HMRC have proposed radical changes to the Travel and Subsistence (T&S) regulations (effective 6th April 2016) which will introduce an entirely new test for allowable T&S expenses – one based on actual (or the right of) Supervision, Direction or Control (SDC), where the presumption will be that where an intermediary is part of the supply chain i.e. an agency or umbrella, then SDC will exist. Unfortunately, SDC is a subjective rather than a quantitative test and so is open to interpretation, but HMRC is proposing to make agencies and/or end-users/clients financially responsible for getting the outcome of this test wrong, and so we should expect future contracting arrangements to specifically exclude the possibility of contractors claiming T&S expenses.  Surprisingly to some, HMRC has indicated that they intend to extend the new T&S rules to personal service companies as well as umbrella workers.

Naturally the industry will take some to time to adjust to this ground-breaking change in the tax treatment of travelling and subsistence expenses and so we should expect to see different agencies and end-users interpreting the new regulations in different ways. But it is you who will be the primary target of HMRC, and so you need to be absolutely abreast of the changes and how they will affect you and your limited company next year.

The expert was Barry Roback FCA, a director at the Anderson Group, a support services specialist for contractors.

Editor’s Note: Related Reading –

Contractors’ Questions: Can I claim if a short gig ends up lasting 25 months?

Tribunal tackles ‘control’ in false self-employment

Contractors’ Questions: Can I claim tax relief on expenses and how?

Tuesday 29th Sep 2015