Contractors travelling to and from a client’s site must comply with HMRC’s temporary workplace rules if they wish to claim travel and subsistence expenses and, if a limited company contractor, to benefit from a corporation tax deduction.
HMRC’s definition of a temporary workplace might appear quite straightforward, but there are additional rules and complexities that could impact on a contractor’s ability to claim expenses and save tax.
Contractors incorrectly claiming expenses and subsistence could face back taxes, interest and penalties if their error is discovered by an HMRC inspector during the course of a routine inspection.
What is a temporary workplace?
According to HMRC’s guidance in EIM32075 :
A workplace is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose.
It goes on to say:
Even where an employee attends a workplace regularly, it will be a temporary workplace and so not a permanent workplace, if the employee attends for the purpose of performing a task of limited duration or other temporary purpose.
So, for the vast majority of limited company contractors whose permanent base is their home office, or umbrella company contractors whose base is their umbrella company’s head office, working on a time-limited contract on the client’s site would appear to qualify as being a temporary workplace. As such, expenses and tax reliefs can be legitimately claimed.
A workplace is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose
HMRC
However, in its definition of a temporary workplace, HMRC draws contractors’ attention to:
- The 24 month rule (EIM 32080)
- The fixed term appointment rule (EIM 32125)
- The depot and bases rule (EIM 32160)
- The area rule (EIM 32190).
The vast majority of contractors are unlikely to be affected by the depot and bases rule or the area rule, but the 24 month and fixed term appointment rules could, and do, apply to many contractors.
HMRC’s definition of a ‘limited duration’ – the 24 month/40% rule
HMRC says that if a period of continuous work lasts more than 24 months at a temporary workplace, then that location ceases to be a temporary workplace and expenses, subsistence and tax relief can no longer be claimed by the contractor.
The rules also say that “a period of continuous work is defined…as a period over which the duties are performed to a significant extent at that place”. According to HMRC, “to a significant extent” means 40% or more of a contractor’s time.
So, a contractor who is spending more than 40% of their time on a client’s site can no longer claim expenses, subsistence and tax relief after 24 months.
Furthermore, the rules state that the workplace stops being temporary when the contractor knows they will be spending more than 24 months at that location, not necessary after 24 months have elapsed.
That means that if a contractor has worked for 18 months at a client’s site and then wins a renewal for a further 12 months, they must stop claiming at that point and not continue to claim expenses for a further 6 months until the 24th month.
The fixed term appointment rule – single, standalone contracts
The fixed term appointment rule can potentially prevent a contractor from claiming any expenses or tax relief at all. This is designed to prevent the client’s location for one-off assignments from qualifying as temporary workplace.
This rule might apply when, for example, an employee has left one job and is not starting the new one for three months and decides to contract for three months in between.
HMRC says that the client’s site cannot be a temporary workplace if the contractor is working on a contract “that can be expected to last for all, or almost all, of the period for which he or she is likely to hold, or continue to hold, that employment”.
Whether they are working via an umbrella company or limited company, the contractor will only be employed by that company for the duration of the contract, after which they start their new permanent job with their next employer. That means the client’s site cannot qualify as a temporary workplace and they cannot claim expenses and tax reliefs.
Area and depot and bases rules
The area and depot and bases rules are mainly aimed at field-based employees, who may or may not work from home as well.
An employee, such as a field-based engineer, may be based out of a particular depot and allocated work by their supervisor at that depot. In this case, the depot is classed as their permanent workplace if they regularly visit the site and the main reason they go there is to receive work.
The area rule might apply to a sales representative who has no depot or office but who is assigned a specific geographic sales area. The whole area qualifies as the sales rep’s permanent workplace if, according to HMRC:
- They have no other permanent workplace location
- They work in the area regularly
- Their job description and duties are defined by that geographical area
- The area was treated as a ‘workplace’.
Establishing whether a client’s site is a temporary workplace, and whether the 24 month rule will continue to apply with a change of contract, can be complex. Contractors should confirm their personal circumstances with their accountant before claiming expenses and tax reliefs.