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What’s So Special About 24 Months?

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It seems from conversations with various freelancers over the last year or so that a lot of them have never heard of the 24 month rule on expenses and those that have don’t really understand it.

This is one of those annoying tax rules that does not differentiate between permanent employee and freelancer. It is based on the not unreasonable assumption that if you take a new job away from your present address, you should not be able to claim the extra costs indefinitely; in fact, it assumes that within two years you will have moved house to be closer to your work. By the same token, your workplace is no longer considered to be temporary if you have been there more than 24 months.

This doesn't really work for freelancers, who frequently have a temporary workplace away from home. Sadly the rules do not make any allowance for that, after 24 months travel and subsistence costs for working away from home at a temporary workplace are no longer able to be offset against tax and become a Benefit-in-Kind.

However, that leaves a few areas unclear - what is your place of work, what is your temporary place of work and even what is 24 months? No wonder people are confused.

Leaving aside Umbrella Company users, whose status is even more unclear and is under review, a freelancer's place of work is assumed to be their home address or their registered office. This means that you can claim the costs of travel from there to wherever it is you are working at present as a legitimate business expense, which is something a permanent employee cannot do (and hence the problem with Umbrella Companies). So far, so good.

However, your temporary workplace is not simply the location of your current client. To the taxman, if the journey you take to get there is substantially the same, then it is the same location regardless of which final address you end up at. So if your current and previous clients were both based in Canary Wharf, then you haven't changed your temporary workplace. If one was in Canary Wharf and the other in the City of London, then you have.

There is another issue. The amount of working time you spend at your temporary workplace is also important. There are no set rules on this, but accepted practice seems to be that if you spend 40% or less of your time at that location, then the rules will not be applied anyway. So if you work mainly from home (or your own office), or have two or three clients that you visit regularly, the 24 month rule probably doesn't apply at all.

Then there is the question of what, precisely, is 24 months? Sounds obvious but, needless to say, it isn't. For one thing, it's a rolling 24 month window: you can't look at a given 24 month period in isolation, you can only look at where you are now and work back 24 months. Also, the rule applies as soon as you know you will be at that location for more than 24 months. If you have a six month contract and accept a 24 month extension, the clock stops immediately and you can't claim for the next 18 months.

And finally this is all about Benefits in Kind. Your Company can pay any expenses it likes; the only question is whether or not a BIK has accrued. Get the 24 month rule wrong and it will cost you money.

Alan Watts
Freelance Consultant and Interim Manager

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: Calendar Card - January by Joe Lanman

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