Contractors' Questions: What is the 2-year rule for Umbrella Companies?

Contractor's Question: Is there any definitive guidance on what happens to allowed expenses as a temporary worker if you stay in a contract for more than two years - under what's known as the 24-month or 2-year rule? I've spoken to a number of people so far and they all give different answers, including expenses being reduced, cancelled out altogether, and even staying the same. Which is it?

Expert's Answer: Don't worry, many people are aware there is a 24-month rule, but don't know exactly how it works!

Where an employee starts a new employment, their employment contract will normally detail their normal place of work. Any travel from their home to this place of work is classed as a private journey. Problems can occur where someone has a temporary place of employment. An example may be easier to highlight the rules.

If an employee works in Coventry and is then sent to work in Leicester for 3 months, then this would be classed as a temporary workplace and travel to this workplace would be allowed, as Coventry is their normal place of work
which they will return to when their temporary assignment has finished.

If the worker was sent to Leicester and the move was for 3 years, then HM Revenue & Customs would contend that Leicester is the normal place of work (as they will be
there for more than 24 months), and any travel from their home to Leicester will now be considered home to work travel and a private journey.

There are a couple of other points to consider. If the worker was going to work in Leicester for 3 months and then after 2 months it was decided that due to business reorganisation, the worker was now required to work in Leicester for another 30 months, then all travel from the end of the second month (when the time extension was decided and it was known that the worker would be in Leicester for more than 24 months) would be considered private travel. Many employers will assume that they can pay the worker their travel for 24 months and it is only after that date that the travel is treated as private. This is an easy and costly mistake to make. When it is known that the work will be over 24 months, then the change takes place.

Another point to consider is if the worker was going to work in Leicester for 3 years. From the start all travel would be private travel. However if after 12 months it was decided to cut short the assignment and the worker would return to Coventry after a further 3 months (a 15 month assignment in total), then travel for the last 3 months would be allowed as it is travel to a temporary place of work. Only the last 3 months would be considered business travel. The employee cannot put in a retrospective claim for the original 12 months travel.

The expert was Ray McMahon, a former tax inspector who is currently an advisor at Consultant365.

Editor's note: The response given suggests that the workplace described in the contract is the normal workplace. Just because it is specified in the contract does not necessarily mean that it is a permanent workplace - it could still be a temporary workplace, and would probably be as such for an umbrella company worker. Also, travelling to a permanent workplace is not an allowable expense, but 'private travel', as termed here, is meant to denote ordinary commuting, not taking time out of work to travel privately or at leisure.


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