How does the 24 month rule work?

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The classification of business travel is ordinarily very simple. A journey to or from a client can be considered as a business trip. All other travel, including commuting to a permanent work place, is classified as private travel. However, many organisations, typically contractors, experience confusion as employees spend extended periods of time working on the site of a client.

Many contracting organisations provide their employees with access to a commercial vehicle, typically a van, in order for them to conduct their trade. To save time and increase efficiency, the employee will more often than not take their van home with them. In order for the commercial vehicle not to be classified as a taxable benefit, it is a requirement of HMRC that the vehicle is not used for private purposes, of which commuting to a permanent work place is an example.

James Abbott is the owner of Abbott Moore LLP and often speaks on freelancer / contractor tax matters. Abbott explains below how the 24 month rule works.

The 24-month and 40% rules

To qualify as a temporary workplace so that a contractor can claim travel expenses, the location must satisfy HMRC’s 40% and 24-month rules. Abbott explains: “A workplace is temporary as long as contractor spends no more than 40% of their time there.

"If the contractor exceeds the 40% rule, then as long as they don’t expect to work at that location for more than two years, then they can continue to claim travel expenses. This is known as the 24-month rule."

In practice, if a contractor is going to spend more than two days out of five during a typical working week on a client’s site, then they have to work to the 24-month rule.

How the 24-month rule works

This, according to Abbott, works on the basis of expectation: “As soon as a contractor knows that they will be spending 24 months or more at a temporary workplace, then the location ceases to be a temporary workplace and the contractor cannot claim expenses."

He gives an example: “Let’s say a contractor wins a 12-month contract with a bank. For the first 12 months, the contractor can claim travel expenses. If they win a six -month extension, they can continue to claim expenses because the duration of the time spent at the workplace will be 18 months.

“But if at 18 months the contractor was awarded another 12-month extension, then at that point they must stop claiming expenses. That’s because HMRC’s rules say that at the point when there is an expectation of spending more than 24 months working at the location, then it immediately ceases to become a temporary workplace and expenses cannot legitimately be claimed."

If the contractor only had a five-month extension, then they could continue to claim expenses right up to the last minute before they reached 24 months.It is vital for contractors to understand that longer build times may result in the need for employees to pay benefit taxation. Read more from James Abbott and view HMRC's regulations on the 24 month rule.

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