Dear Contractor Doctor,
I live in Manchester and have been working for a client in Aberdeen for the last 21 months.
The client is very likely to offer me an extension that will take me over 24 months, which means that I can't deduct travel expenses any longer. Do I have to repay the travel expenses which I've already deducted for? Also, what difference does the longer contract make to my accounting?
Contractor Doctor says:
Certainly, you don't have to pay anything back. You have a perfect right to deduct your travel expenses until such time as you know that your contract will last longer than 24 months.
The ''when you know'' part of this is important, because you can save money by renewing at an advantageous time.
For example, if you just finished 18 months at the same client and renewed for a further year (12 more months), you wouldn't be able to claim any more travel expenses. Clearly, you ''knew'' that you would be working for more than 24 months.
However, if you renewed for 6 months instead you could claim for the full 24 months. After that final 6-month period you are definitively out of luck. If you then stayed on after that you would not be able to claim for any more travel expenses.
Now, you still don't know that your duration will be more than 24 months, and you won't know it until you get offered the extension. But as soon as you renew, you have to stop claiming them.
So what happens if you do anyway? If you claim expenses that you shouldn’t have then you won't have to pay them back, but they will be treated as taxable income by the Revenue. Naturally your tax bill will increase accordingly. So, for example, if you are already paying (hypothetically) 40% tax, you would have to treat the invalid expenses as income, and that will mean paying not only tax on them but also National Insurance contributions. Your umbrella will work out the details for you, but it ain't pretty.
It's best to just play by the rules and to take the deductions that you are allowed to. Contractor expenses are a kind of hot topic with the Revenue these days, because there are a significant number of abuses of them of various kinds. Not a mares nest that you want to step into!