Q: I have been working remotely on two separate projects in two separate locations for the same end client. The locations are within the same defined geographical area, yet sufficiently far away to be served by different airports. The first engagement lasted a year; the second has just begun and is also likely to last for a year. It is possible that there may be further project work in the second location. How should my travelling expenses be considered in light of the 24-month rule – does the second project effectively ‘reset the clock’ for the 24-month rule?
A: The relevant legislation in ITEPA 2003 s339 definitively states that a workplace can only be temporary if the attendance at that workplace is for a limited duration or for a temporary purpose. A workplace is excluded from being temporary if attendance is in the course of a period of continuous work for a period of more than 24 months.
If, at the outset, it was known that an engagement would last more than 24 months, whether that is evidenced in writing or not, there would be no deduction for the travel and subsistence. The legislation also refers to the individual spending at least 40% of their time at that workplace; we assume that to be the case here.
It is just possible that HMRC might seek to argue the issue on the grounds that the duties are defined by reference to a geographical area. If your contract is to supply services within a defined geographical area, then the whole of that geographical area is likely to be treated by HMRC as a permanent workplace.
However, what we have to concern ourselves with is how HMRC might interpret the legislation – the examples given on HMRC’s website at EIM32000 onwards can only be treated as guidance, nothing more – each case must be considered on its merits. This does mean that you also have the right to interpret the guidance, and as long as you have taken reasonable measures to do so, and can evidence this, then even if HMRC win their argument, there should be no penalty levied on any tax that might become due.
Whilst our response must be treated as an opinion based on the facts provided, there is no guarantee that an Inspector will agree; indeed, in this current environment of HMRC clamping down on travel and subsistence you can expect HMRC to take a very narrow view!
Our thoughts are as follows:
Scenario A – The engagement at Location 2 is known to last 24 months or longer
Assuming HMRC view Location 2 as another temporary work place, then, as noted above, if at the outset of the latest contract, it is known that the Location 2 engagement will last for more than 24 months, whether that is in writing or not, there would be no deduction for the travel and subsistence and you would only be able to claim for the first year at Location 1; i.e. the change in location is no longer relevant. Please note that it is at the point that you become aware that the engagement will last more than 24 months.
Scenario B – It was known that the engagement with the client would be for 24 months or longer irrespective of whether it was known that there would be a change of location.
If HMRC take the view that you knew at the outset that you were working for 24-months plus for the client, then the change in location is likely to be immaterial with HMRC arguing that the location was the geographical area. There is an argument to say that the travelling expenses between the two locations should be allowable with one of them being deemed the permanent location.
Scenario C – Assuming that HMRC are able to argue that the geographical area is the temporary workplace
If the geographical area is deemed to be the temporary workplace, then the clock will not reset and once the Location 2 is extended beyond 12 months or when you become aware that the second engagement will last long enough to mean that you have been working in the same geographical area for more than 24-months, there would be no further deduction for the travel and subsistence at that point.
Scenario D – The argument for ‘resetting the clock’
The basic principle is that a change in the location or the boundaries of a workplace will be recognised as a change of workplace provided that change makes a significant difference to the commuting journey.
The argument in your favour stems from HMRC’s guidance, which is that a journey to or from a temporary workplace has a substantial effect either on the journey that has to be made to get to work, and the cost of the journey. The question is whether the 30 mile difference between the two locations is enough for that to be significant when set against the overall journey from your home, which we assume is the location of your business. HMRC may try to argue that 30 miles is only a small portion of the overall journey.
An example of where the travel expenses can be claimed is found at EIM32300 on HMRC’s website and this cites the extra distance involved as being 10 miles or more each way:
An employee is a human resources manager who normally drives 9 miles to the office that is her permanent workplace. One day she has to visit a factory to discuss possible redundancies. The factory is 11 miles beyond her office. She drives the 20 miles to the factory along her ordinary commuting route and past her permanent workplace. The factory is a temporary workplace. The journey from home to the factory is along the same route as her ordinary commuting journey but is substantially longer. So it is not substantially ordinary commuting. She is entitled to mileage allowance relief.
However, as noted above, this is guidance and not written into the legislation.
- Treat the clock as starting in 2013 and finishing when you knew the engagement at Location 2 will extend the engagement with this end client beyond 24 months.
- ‘Reset the clock’ if you believe that you can argue that a) you had no idea that further work would be offered to you in 2014; and b) that it is a completely different engagement.
HMRC’s objection might be that it is the same end client and because you are undertaking work within the framework of overall projects likely to last for a number of years, it was always likely that further work would be offered and that the engagements aren’t necessarily that different.
We are not saying that we agree with these arguments; just be prepared for them if you select Option 2. Our advice would be that if Option 2 is selected, you keep money aside in case you lose the argument.
As you can see from the above it is a very grey area and each case has to be looked at individually taking into account all the facts. Furthermore, no-one can guarantee that HMRC will not challenge the deductibility of the travel expenditure.
Author: Paul Mason, National Contractor Manager
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