What is the HMRC 24-month rule for expenses?

Learn more about HMRC’s 24-month rule on travel expenses for your business and make sure you can save money. 

We’ll cover everything you need to know about tax relief on certain travel expenses, including the 24-month rule. Discover:

• What the 24-month rule is
• How HMRC defines a ‘temporary workplace’
• How to work out 40% of ‘working time’
• Additional considerations for your business
• How to manage your travel expenses better with Countingup

HMRC provides tax relief (to reduce the amount of tax you owe) on travel expenses that are part of necessary business travel but are not part of otherwise normal operations. One way HMRC recognises this is through temporary workplaces.

The ‘24 month rule’ is one of the requirements HMRC holds temporary workplaces to before employees and businesses can deduct travel expenses successfully; however, there are others. Therefore, even if your working pattern fails the 24-month rule, you can still deduct travel expenses from your costs. 

HMRC defines temporary workplaces as follows:

“If an employee goes there only to perform a task of
limited duration or for a temporary purpose.”

Business owners are eligible for travel-related expense relief via either of these temporary workplace definitions. Therefore, don’t be alarmed if you’ve spent lots of money, seek to claim it back and fail the definition for ‘limited duration’ (or ‘temporary purpose’) as you may still be eligible via the other definition.

HMRC takes into account the 24-month and 40% rules during workplace definitions so knowing how both work is important. 

HMRC defines ‘temporary purposes’ as ‘self-contained visits’. Here, consider whether or not you’ll be able to fulfil or fix in a single journey the issue(s) that took you there in the first place.

For this reason, HMRC allows regular visits to the same temporary workplace if they’re for necessary work purposes, but the journeys happen infrequently. For example, if your business has to regularly conduct quality control measures on a production unit or retail space. These sorts of visits fall under a ‘temporary purpose’ because your visit’s purpose is fulfilled once the inspection is complete. HMRC has various useful examples here.

HMRC has an open definition for ‘limited durations’, with the ‘24-month rule’ being a reference point for work projects.

• If your expected work duration is less than 24 months: HMRC allows more intensive work to be undertaken and will provide tax relief from travel expenses. HMRC terms this ‘continuous work’ wherein a business owner or employee spends more than 40% of their working time at a new workplace. If this >40% time threshold continues beyond 24 months at the same workplace, HMRC considers this a permanent workplace and no longer provides tax relief.
• If your expected work duration is more than 24 months: HMRC requires work to be undertaken for less than 40% of working time. While HMRC does not specify any upper limit (therefore, this less intensive work arrangement at a newer location can continue for longer than 24 months with tax relief provided), a specified end date must be detailed. Otherwise, with no end date provided, HMRC will consider this an additional permanent workplace and provide no tax relief.

In the first example, HMRC recognises the cost businesses incur to set up new premises. For example, you would be able to claim travel expenses if you’re setting up a new office or location for your business and you’re expecting to hire, train and establish a team within 18 months. This is because you’re expecting to be finished sooner than the 24 available. 

However, you can claim tax relief for a new temporary workplace if you undertake a work project for less than 40% of your working time for more than 24 months. For example, working 16 hours out of 40 for 36 months.

HMRC has several useful examples here.

HMRC does not specify a set number of hours or working days as a threshold for what is or isn’t ‘40% of working time’. 

This is to reflect working arrangements that are project-based and may fall outside of typical working expectations or where business owners work as long as they need or want to. Therefore, travel expenses eligible for tax relief need to accurately reflect either of the two circumstances outlined above for your own business.

To calculate your business’ 40% threshold, start with the number of hours you expect your project to take while at your new temporary workplace. Now, divide this by the number of hours you spend working in total at all other permanent workplaces, then times this figure by 100.

If your value is less than 40, you can claim travel expenses for the duration of the project. If your value is over 40, you can claim expenses as long as the project duration is less than 24 months long.

HMRC specifies that if a work location is deemed a temporary workplace via ‘temporary purposes’ or ‘limited durations’ (see above), you must consider the following additional rules. These may affect your eligibility for tax relief as they are caveats to what working arrangements fall under ‘temporary purposes’ or ‘limited durations’.

• Fixed term appointment rule
• Depots and bases rule
• Area rule

Ensure to double-check if your business’ travel demands or work pattern is reflected in these rules and speak with your accountant for more information.

Take a load off your mind and make sure you never miss a business expense again with Countingup.

Countingup is the business current account that comes with free built-in accounting software. With all your financial information in one place, you can automate your financial admin to save time and stress from your business. All this and more will help you when claiming travel expenses.

Countingup offers real-time profit and loss reports, so you can see expenses for your business when they happen. Countingup also comes with expense reminders and a receipt capture tool so you can make sure your business’ accounts are always up to date and accurate.
Gain complete confidence in your business’ finances. Find out more here and sign up for free today.