When it comes to managing your contractor finances, keeping on top of your expenses can help to significantly reduce costs whilst ensuring that not you, but your business, takes the hit on these outgoings.
One of the most commonly claimed form of expenses is for business travel, but there’s often a lot of confusion about what can and can’t be claimed. This is particularly relevant when it comes to contracting at the same site for a long period of time, primarily due to the 24 month rule.
In its simplest form, the 24 month rule states that you can claim travel expenses to a temporary workplace for up to two years. It might sound easy to grasp, but there’s a few grey areas that contractors can get bogged down in.
For example, what constitutes a temporary workplace? Does the 24 months ever reset back to zero? What if I move sites but still work for the same client?
In this guide, we’ll take a closer look at exactly how the 24 month rule works and what steps you can take to minimise its financial impact on your business.
What Is The 24 Month Rule?
We’ve already touched on a basic definition of the 24 month rule, but there’s a little more to it when you start to dig around under the bonnet.
First things first, let’s take a look at a few helpful definitions. The 24 month rule has been in place since 1998 and specifies that travel expenses can only be claimed for trips to a ‘temporary workplace’. A workplace is classed as temporary so long as the circumstances of the contract fall under one of the following categories:
- The engagement is for less than 24 months
- The engagement period is as yet unknown but assumed to be under 24 months
Secondly, it’s well worth noting that you’ll no longer be able to claim travel expenses from the date you’re made aware that you’ll be working on the same location for a longer period than 24 months.
For example, this may well come into play if you’ve been travelling to a temporary workplace for 18 months and are then offered a 12 month contract extension. From the date this contract extension is signed, you’d no longer be eligible for travel expenses to this location as you’d be well aware that the contact will exceed the 24 month cut off.
Finally, the 24 month rule will kick in as soon as you’ve spent, or anticipate spending, more than 40% of your time at a given location during a two year period or more.
How Can The 24 Month Rule Affect My Business?
If you don’t invest time in planning ahead for the 24 month rule then the impact on increased travel costs can be detrimental to your cash flow. As a working example from the time of writing (September 2018), the short 45 minute train trip from Guildford to London Waterloo already exceeds £5,000 per year and that’s without the added cost of essential tube and bus travel.
Whilst this is a relatively short commute, those travelling further afield or even abroad will face far harsher ticket costs. The same can be said for businesses who are responsible for the travel costs of multiple employees with long term, on-site contractors a more common proposition for employers than taking on permanent members of staff.
The best way to negate the impact that added travel costs can have on your business is to prepare for them well in advance by factoring them into your financial budgets and customer quotations.
Can’t I Just Take A Break Or Move To A Different Site?
One of the most common responses that clients offer to the 24 month rule is that they’ll simply change sites or office locations. On the surface it seems like a sensible option, but you’d need to make a significant change to your daily commute.
Again, the definition of significant is a bit of a grey area and a contentious topic of debate, but by applying a common sense approach you’ll get an idea as to what could reasonably deemed significant and what isn’t. For instance, if you usually take the train and tube to work and have now moved into an office one stop further along the same line, it’s likely to have very minimal on your travel time and costs. However, if you were now commuting by car 30 miles in the opposite direction of your existing site then this would lead to a significant increase in your travel costs meaning you could continue claiming expenses.
The same can be said for if you’re working for the same client but in a different location. The 24 month rule is specific to travel costs and so therefore the client you’re working for has absolutely no bearing on your ability to claim.
Why Gorilla Accounting?
At Gorilla Accounting, we’ve accumulated decades of experience helping growing contractors and freelancers to manage their accounts efficiently and effectively. We’ve helped hundreds of clients to better understand the 24 month rule, ultimately improving the way that contracts are structured to account for the increase or decrease in travel costs.
Once you’ve appointed us as your accountancy services provider, you’ll be allocated a dedicated accountant who’ll work with you to better understand your business and improve your financial management. They’ll explain how you can best prepare for future travel costs, particularly if you’re approaching the 24 month cut off. You’ll have unlimited, unrestricted access to them via telephone, e-mail, video conferencing and even face to face meetings without the fear of increased fees or hidden charges.
Contact Us today for more information on the features and services offered by Gorilla Accounting or to begin the process of appointing us as your one stop shop accountant.
