A bypass to the 24-month rule that it’s probably best to bypass
Quite apart from recent momentum to change a specific aspect of expenses when it comes to training for one-person ventures, there is little if not no appetite to amend the 24-month rule on food and other expense-ables, writes Duncan Strike, director at Intouch Accounting.
This is not because the rule isn’t unwieldy or complex -- the traits that put many a rule on the agenda of lobbyists. It’s more likely because the rule is so deeply ingrained into the contractor expenses landscape that excavating it would require heavyweights like the OTS to be on-site before reform begins.
But the 24-month rule, which restricts the tax relief available on costs incurred on travelling and/or subsistence when working at a temporary workplace beyond the said-period, contains a quirk that many contractors will likely appreciate. However, they’re probably too alert to HMRC to act on it.
Remember, throughout the relevant legislation imposing the restriction, reference is made to “the employment”, and of course “the employment” is a unique relationship between one employer and one employee. If the rule applies to “the employment”, then what happens when that specific employment changes?
So let’s say you are employed by your own company, ‘Company A Limited,’ and you are offered a renewal of a contract that would mean you break the ‘24 month’ rule by exceeding 24 months. But instead of renewing via Company A Limited, you incorporate ‘Company B Limited;’ agree the contract and commence employment with your new company.
In my view, this is new employment. And that’s not the same as the employment to which the 24-month rule will be exceeded; therefore, I conclude that the outcome, based on how the legislation is written, is that the commencement date for the rule must be reset to day one.
Now this seems too good to be true, and so simple that my analysis must be flawed. Surely HMRC must have previously considered it, or at least some form of challenge must have been made? Well, having taken a deeper look, I cannot find anything that carries the weight of law, such as a tribunal decision. What I have found is that I am not alone in my interpretation, and respected commentators in the technical tax press appear to have also reached a similar conclusion.
Perhaps the 24-month rule is less robust than many think? Perhaps a simple change in employer is enough to reset the clock? Now, of course, I’m not advocating that anyone should issue themselves a P45 and start their new company, despite the obvious temptation!
Of course, it goes without saying that HMRC would argue that the employment hasn’t changed, but the facts do say otherwise, that it has. And, just because HMRC disagrees it does not mean they are right. Indeed, as I have often said, HMRC cannot simply impose their idea of how the world revolves; it’s the law that does that.
Whether or not the single act of changing employer would be regarded as having as one of its main purposes tax avoidance is a debatable point, and of course it depends on the individual circumstances. I would argue that if parliament intended the legislation to combine two employments the law would have addressed it, though I doubt it was ever considered.
Lastly, that temptation. If you do feel tempted, I recommend first taking advice and support from your accountant. Plus, don’t do anything less than full disclosure to HMRC, probably via the notes of the tax return and of course, with eyes wide open, and an appreciation that the Revenue is not going to like it.