Travel expenses are one of the most significant tax deductions available to contractors operating through a limited company. However, the rules around claiming travel are specific and sometimes misunderstood, particularly the 24-month rule.
Temporary vs permanent workplace
You can claim travel expenses to a temporary workplace but not to a permanent workplace. A client site is considered temporary if you expect the engagement to last less than 24 months. Once you expect to be at the same location for more than 24 months (or once you have actually been there for 24 months), it becomes a permanent workplace and travel ceases to be deductible.
How the 24-month rule works
The clock starts when you first attend the client site and runs continuously. Contract extensions count towards the total. If you start a six-month contract and it is extended three times, you reach the 24-month threshold after two years at the same site. At that point, you can no longer claim travel to that location, even if each individual contract was short-term.
The 40 percent test
There is a secondary test based on the proportion of your working time spent at the client site. If you spend more than 40 percent of your working time at a single location over a period that is likely to exceed 24 months, that location becomes your permanent workplace. This is particularly relevant for hybrid workers who split time between home and office.
Planning around the rule
If you are approaching the 24-month threshold at a client site, discuss the implications with your accountant before the deadline arrives. Options include ending the engagement and taking a different contract (even briefly), renegotiating your rate to compensate for the loss of travel deductions, or restructuring your working pattern to fall below the 40 percent threshold.