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Contractor Doctor: Does the 24 month rule apply to two clients at the same location?

Dear Contractor Doctor

I’ve been contracting for a client at its offices just north of London’s Docklands’ Canada Square for the last 18 months. My existing client is keen to renew my contract for another 12 months, but I was concerned that the 24 month rule would take effect and I would no longer be able to claim my travel and lunch expenses.

I’ve managed to secure a contract offer from a different client further south in Docklands, at Heron Quays and, although I need to walk further, I can still use the same underground train station.

Does the 24 month rule still apply if I switch contracts to a new contract with a client a nearby location?



Contractor Doctor says:

“Based on the examples provided by HMRC in the guidance it provides to its own inspectors, changing buildings that only affects the walk from the tube station is unlikely to reset the 24 month rule,” explains James Abbott of contractor accountant Abbott Moore.

“However, the rules regarding temporary workplaces and the travel and subsistence expenses contractors can claim and which qualify for a corporation tax deduction are complex, leading to grey areas that may require the input of an accountant,” he adds.

According to Abbott, the four ‘pillars’ of temporary workplace rules that will help contractors to determine whether a change of location allows them to reset the 24 month rule are:

  1. The temporary workplace concept
  2. Fixed term appointments
  3. The 24 month and 40% rules
  4. When a temporary workplace changes.

1. The temporary workplace concept

“Employees with a typical office job cannot claim the costs of normal commuting between their home and usual place of work,” continues Abbott. ”And it is possible to have more than one normal place of work.

“An employee might be based on one site for three days a week and spend the remaining two days at another site. However, employees can claim for travel and subsistence expenses for journeys to and from a temporary workplace.”

Abbott highlights that it is the concept of a temporary workplace that enables most contractors, whose home is their normal place of work, to claim travel expenses and subsistence when working at a client’s location.

2. Fixed term appointments

HMRC’s rules say that the concept of a temporary workplace cannot apply if the worker will be based at that workplace for the entire duration of their employment or office holding, so travel and subsistence expense cannot be claimed.

“So, if a permanent employee had the opportunity to take a 12 month contract with a single client at their location, and created a limited company specifically for that purpose, with the intention of closing it as soon as the contract ended, travel expenses could not be claimed.”

In this context, employment and office holding applies to the contractor’s limited company, not their status with the client.

3. The 24 month and 40% rules

Abbott says that in order for a place to stop being a temporary workplace, HMRC has to prove that the contractor:

  • Spends more than 40% of their time working at the location, and
  • The contract will last for more than 24 months.

“For example, if a contractor has been working on a 12 month contract at a single location, and the client wishes to extend this by 18 months, at the point at which the contractor signs the extension to the contract so they know they will be at that location for over 24 months, the 24 month rule kicks in and they have to stop claiming travel and subsistence expenses.”

EIM 32089 confirms that if a contractor starts work with a new client in a different building near to the previous client, then the 24 month rule is not reset

James Abbott, Abbott Moore

This is what HMRC calls a ‘look forward test’, and is based on expectation as well has what has happened..

4. When a temporary workplace changes

Abbott warns that the point at which a temporary workplace changes can at times be a grey area, although on some points HMRC is very clear. If a contractor changes client but remains in the same building, then the 24 month rule is not reset.

“HMRC has an example of an IT contractor working in London’s financial district. This is discussed in an HMRC manual, which is designed to provide guidance to its own inspectors on how to apply the travel expenses rules legislation – Section 339(7) of the Income Tax (Earnings and Pensions) Act 2003.

He continues: “EIM 32089 confirms that if a contractor starts work with a new client in a different building near to the previous client, then the 24 month rule is not reset. Similarly, it suggests that if a contractor starts on a new contract with a client a few streets away from their most recent client, the 24 month rule is not reset.”

The guidance also confirms that, for the purposes of proving that a contractor’s workplace is their permanent workplace, HMRC can “ignore a change of workplace if that change does not have any significant effect on the employee's journey to work.”

What is a “significant effect” on a contractor’s journey to work?

Unfortunately, there is no statutory definition of ‘significant effect’ in this context, and what is acceptable to HMRC will depend on many factors, such as location, journey time and cost.

Abbott recommends that contractors start with what they know is unacceptable and work backwards: “If the new workplace is not in the same building or on the same street, then there may be a case for resetting the 24 month rule.

“However, each contractor’s circumstances and journey will be different, so at this point, contractors would benefit from taking advice from their accountant.”

Published: 15 October 2012

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