What is the 24 month rule?

The 24 month rule states that the cost of travel from your home (being your permanent place of residence) to your contract client address (your temporary workplace) is only allowable as a tax deductible expense for as long as you believe your contract will not exceed 24 months.  The Revenue would view this as a temporary workplace.

If you believe or think it is highly likely that you will be based in the same office for 24 months or more, then the workplace will be permanent from the outset.

What if my client extends my contract?

If your contract is for less than 24 months when you start but your client asks to extend it when you have completed a number of  months, (for example if your contract is extended at 18 months for a further year), then you should not claim travel expenses as a tax deductible expense from the 18 month date.  HMRC would deem your client address to be your permanent workplace from that date onwards.

What if all my clients are in one area?

An extension to the regulations states that if you change sites/clients on a regular basis but you still have a consistent journey in terms of time, cost and destination, for example sites within the City’s square mile, or the tech hub at Old Street, the workplaces would all be deemed permanent.

What about returning to an old client?

If you are good at your work it would not be uncommon for you to be invited back by an old client when a new project commences.  If you have spent more than 40 per cent of your working time at that workplace in a 24 month period, even with a break in engagements, the workplace is considered permanent and you cannot claim a tax deduction for travel.

Have you been caught by this rule?

If you were unaware of this rule and your limited company continued to pay for your travel to a client site after the 24 month period then what are the consequences?

Your company can continue to pay for your travel costs but as the workplace is permanent the travel is considered to be ordinary commuting.  This means you will have to complete a P11D, return of benefits, at the end of the income tax year.  Your limited company will have to pay national insurance on the value of the travel at 13.8% and you will have to include the benefit in your self-assessment tax return.

If you are not sure if you are caught by these rules then call or email Clearways Accountants for advice.