What is the 24 Month Rule for Expenses?

(3 minutes to read)

The 24 month rule is designed to clarify the extent of travel and subsistence expenses a contractor can claim, when travelling and working at a client’s place of work.

When it comes to contracting, there are a number of benefits that come hand-in-hand with this way of working.

One of the biggest advantages is that you are able to claim back on a wide range of expenses, which in turn will reduce your tax bill at the end of the year.

Typical contractor expenses includes:

  • Travel
  • Accountancy fees
  • Any office items, such as stationery, software and computers
  • Business mobile phone bills
  • The rent of a commercial office used by your company

It is important to note that with any expenses you wish to claim, you will need to keep hold of receipts for proof of these purchases, for a minimum of 6 years.

Your accountant will also be able to give you further advice on what counts as a legitimate expense for you, as what you can claim back on will depend entirely on your method of contracting i.e. Sole Trader, Limited or Umbrella Company.

What is the 24 month rule?

The 24 month rule comes under the travel section of expenses and is designed to provide tax relief for contractors having to travel to a place of work that is not their permanent base.

The key word when it comes to this legislation is ‘temporary’ – the place of work the contractor is travelling to must be considered temporary, which is where the 24 month rule comes into place.

If the contract with the client is expected to run for less than 24 months, then this is deemed a temporary place of work. The same applies if the length of the contract is uncertain and so when you reach the two year mark with the contract, any time spent there after cannot be claimed for.

If you sign up to a contract and you are aware that it will last longer than 24 months, you will not be eligible to make any claim at all for the travel and subsistence it will cost you while carrying out this contract.

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I work for more than one client within the same area, what can I claim?

The 24 month rule can become a little complicated when it isn’t a simple case of you just working for the one client under or for two years.

If you work for a number of clients who are based within the same location, then you won’t be able to claim for each contract, as the 24 month rule applies to the general area, rather than to a specific contract or site.

You may need further guidance from your accountant when it comes to a situation such as this, however, the general rule would be that if you have two or more clients in the same area and each journey will take you approximately the same amount of time, this would be considered as being the same location.

There is also the amount of time that you spend at each client’s workplace to take into consideration, as you need to spend less than 40% of your time at a location for it to be seen as a ‘temporary’ workplace and therefore have unlimited travel and subsistence costs.

For example, if you find that you’re spending 65% of your time with one client and 35% on another, you can claim on the second place of work but not the first – assuming they are located in different locations.

My client’s location has changed, can I still claim?

If your client’s place of work has changed and the amount of time you spend on the journey is about the same, this won’t have any affect on the timeframe from when you first started contracting for that client.

If the journey is significantly different then the 24 month period should in theory restart, however, this is subjective and so further advice would be needed to assess your situation.

What if I have a break in the contract before the 24 months is up?

It may seem obvious that having a break from a contract would mean that the 24 month rule will automatically be restarted, however, this isn’t the case at all, as there are another set of rules to follow when it comes to a situation such as this.

The only way in which this would work would be if you had a break of at least 15 months between each contract and you would have to of carried out work for a different client in between this break.

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Why Dolan Accountancy?

With over 25 years experience in contractor accountancy helping thousands of contractors, freelancers and the self employed, Dolan Accountancy has the specialist skills, reputation and credibility you can trust. Working closely with our sister company, Contractor Umbrella, it means we can offer one low cost, fixed fee package at £105 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of Contractor Umbrella – With IR35 Legislation changes we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, Contractor Umbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use Tide free of charge for the first year.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.