I am continuing to be baffled by HMRC’s guidance on the 24mth expense rule when considering the 40% rule as the examples provided in HMRC Guidance 490 are more to do with permanent employees.
My interpretation is:
1. Working at a client for less than 24m (or expected to be less than 24m), then 40% rule not relevant and I can claim
2. If I am (or expect to be at a client) for more than 24m, then the 40% rule comes into play i.e. :
a. If I have been at a client for more than 24m, but this accounts as less than 40% of the time I have been operating as an employee of my company, then I CAN claim
b. If I have been at a client for more than 24m, but this accounts as 40% or more of the time I have been operating as an employee of my company, then I CAN’T
My accountant interprets that the 40% rule applies to the 24m period only. i.e. if I am with one client for more than 40% of my time in a 24m period then I cant claim
My understanding comes from:
Example 3.14 of 490 states “The test is whether the employee has spent, or is likely to spend, 40% or more of their working time at that particular workplace over a period of more than 24 months”? Again “a period of more than 24 months” is used in section 3.15?
Eloise, a computer consultant, is the only employee of a company which she controls. She is a specialist in banking systems. She spends 18 months working full-time at the headquarters of a merchant bank in Lombard Street in the City of London. She then moves next door to design a new computer system for a different bank where she expects to stay working full-time for 22 months. After that assignment she moves to work at a bank close by on Cheapside for 17 months. Eloise is not entitled to tax relief for her travel from home to these workplaces, because the nature of her work is such that she expects to work continuously in the ‘Square Mile’ albeit on the premises of different banks. So her travel from home to work will be broadly the same every day, year in year out (see paragraph 4.6).
However this only excludes expenses when clients or with a square mile.
Emily is employed as a seal doctor at a zoo on the south coast. She is sent to Morecambe to supervise a seal sanctuary for one day each month. She has done this for five years. Although Emily goes to Morecambe for more than 24 months she does not spend more than 40% of her working time there and she retains a permanent workplace on the south coast. So she is entitled to relief for her travel from home to Morecambe.
This seems to imply that even if you have been at one “client”, the seal sanctuary in this case, for more than 24months, as long as the time at this “client” amounts to less than 40% of your total time “employed”, in this example by the Zoo (in my case by my company) its OK
It’s a shame HMRC don’t give clearer examples.
Looking at the example in 3.19:
Ferdinand is a computer expert who provides his services through a company which he owns. He is the company’s only employee. Each year the company has around 15 contracts
with different clients around the country to supply Ferdinand’s services. He regularly travels from home to work at the premises of the company’s clients. Provided he does not
expect to spend more than 40% of his working time for more than 24 months at any one site he is entitled to relief for all his journeys from home to the clients’ premises.
I could interpret this as, as long as I’m not at a client for more than 40% of my time for a period longer than 24months, I can claim?
I have been contracting since 2001 (umbrella companies etc) and employed by my company since 2007. Assuming my interpretation of the 40% rule is reasonable, would I have to base the 40% of my time contracting (since 2001) or employed by my company (2007)?
Thanks for your help.