Travel expenses for contractors outside IR35

Q: How does this look on a real contract?

Illustration only. Kate is the sole director and shareholder of her own consultancy company and lives in Bath. In May 2026 the company wins a 12 month contract with a small engineering firm in Bristol, which the company assesses as outside IR35 because Kate controls how the work is done, supplies her own equipment and has a genuine right of substitution. She works on site three days a week. Bristol is a temporary workplace, so the company reimburses her train fares and lunches while travelling without tax, National Insurance or a P11D entry. In March 2027 the client extends the contract to 30 months in total. From that date Bristol becomes a permanent workplace, because she spends more than 40% of her time there over an expected period of more than 24 months. Reimbursements after that date are taxable earnings and go through payroll; those made before stay tax free.

If a contract is genuinely outside IR35, the special travel rule for workers supplied through intermediaries in section 339A of ITEPA 2003 does not apply, so the director of a personal service company is taxed under the ordinary employee travel rules. The company can then pay or reimburse the full cost of travel and subsistence to a client site free of tax and National Insurance, as long as that site is a temporary workplace: broadly, the director is not expected to spend 40% or more of their working time there over a period lasting more than 24 months.

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Why does IR35 status decide the travel answer?

From 6 April 2016, section 339A treats each engagement of a worker supplied through an employment intermediary as a separate employment for the travel rules in sections 338 and 339. ESM5510 explains the effect: every client site tends to become a permanent workplace, so travel from home is ordinary commuting and attracts no tax relief and no National Insurance disregard. HMRC lists a personal service company as one type of employment intermediary, alongside agencies, umbrella companies and managed service companies.

For a worker’s own company, the outcome then follows the intermediaries rules:

Section 339A(4) and (6A) apply the rule where Chapter 8 (IR35 for small clients) or Chapter 10 (off payroll working for medium, large and public sector clients) applies to the engagement.
Section 339A(5) and (6B) switch the rule off where those chapters do not apply only because the worker would not be an employee or office holder of the client if engaged directly, the company otherwise meets the intermediary conditions, and the company is not a managed service company.

ESM5600 gives the example of Asif, a draughtsman whose company is not caught by IR35 on any of its contracts. Section 339A does not apply to his travel, and HMRC adds that this is so whether he takes his income as salary or dividends, and without looking at whether he is under supervision, direction or control. For a contract inside IR35, see contractor expenses inside IR35.

When is a client site a temporary workplace?

Under the ordinary rules, section 338 allows relief for travel to a place the employee has to attend for the duties, but not for ordinary commuting between home and a permanent workplace. Section 339(3) defines a temporary workplace as one the employee goes to only to perform a task of limited duration or for a temporary purpose (EIM32075).

HMRC applies this directly to service companies. EIM32136 describes a computer expert who is the only employee of his own company, which has around three contracts a year with clients around the country. Each client’s premises is a temporary workplace provided he does not expect to spend more than 40% of his time at any one site for more than 24 months. EIM32135 confirms that the company’s contracts with clients are not treated as separate fixed term appointments of the director, so his continuing employment with his own company is the employment that counts, not each contract.

That last point is what makes the outside IR35 position valuable. If each contract were treated as a separate employment, the rule in section 339(5) on fixed term appointments, explained at EIM32125, would usually make the site permanent from day one.

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How does the 24 month rule work for a contract?

EIM32080 explains that a site cannot be a temporary workplace if the employee attends it in the course of a period of continuous work that lasts, or is likely to last, more than 24 months. Continuous work means the duties are performed there to a significant extent, and HMRC treats 40% or more of working time as significant. The test looks at what is expected at each point in time, not just at the outcome.

A contract expected to run for 18 months at four days a week is a temporary workplace from the start.
If the client extends it so that the total expected period now exceeds 24 months, the site becomes permanent from the date the expectation changed. Earlier travel stays relieved.
If a long contract is cut short so that it is no longer expected to exceed 24 months, relief starts from the date of that change. EIM32085 gives this example.
A site attended less than 40% of the time can stay temporary even on a long contract, provided it is still for a task of limited duration.

EIM32100 says HMRC looks first at what the employee was told about the expected length, the duration of the project and any agreements between the parties, and treats a move of home as an important factor. Keep each contract, every extension and the dates you learned of them. The detailed mechanics are in our guide to temporary workplaces and the 24 month rule.

What can the company pay tax free?

ESM5510 says travel expenses include the cost of the journey together with subsistence and other associated costs. Where the director would be entitled to a full deduction, section 289A exempts the payment or reimbursement from tax and National Insurance. EIM30210 says the employer does not need HMRC’s agreement and does not report these on form P11D, but must satisfy itself at the time of payment that the expense would be fully deductible. Typical qualifying costs are:

train, bus or air fares between home and the client site;
mileage in the director’s own car at the approved rates, which GOV.UK gives as 55p a mile for the first 10,000 business miles from 6 April 2026 and 25p a mile after that;
meals bought while travelling, and hotel costs where the director stays near a site that is a temporary workplace, which can be paid at actual cost or using the benchmark scale rates.

Payments that are not fully deductible, such as travel to a site that has become permanent, must go through payroll or be reported as a benefit.

Can the director’s home count as the base?

Rarely, and it is not needed when the client site is temporary. EIM32800 says HMRC will only accept that substantive duties are carried out at home where the company has a business beyond servicing individual client contracts, such as developing and marketing its own software from home. Doing the company’s paperwork at home is not enough, and where the client contract specifies work at the client’s premises HMRC will usually reject the argument. Relying on a home office claim to rescue travel to a site that has become permanent under the 24 month rule is therefore weak.

What happens if the IR35 position changes?

Travel relief follows the status of each engagement. ESM5600 gives the example of Dean, who takes all his company’s income as salary on a contract that would be inside IR35: section 339A still applies, and none of his home to site journeys are relieved. Where a contract is inside IR35 and section 339A has not been applied correctly, ESM5580 says the unpaid tax can be transferred to the company’s directors.

So a fresh status review on each new contract or major change is also a travel review. For medium and large clients the client’s status determination drives the answer; for small clients the company makes its own assessment, as explained in small clients and the off payroll rules. The exception for outside IR35 contracts never covers a managed service company (section 339A(5)(c)).

How does this look on a real contract?

Illustration only. Kate is the sole director and shareholder of her own consultancy company and lives in Bath. In May 2026 the company wins a 12 month contract with a small engineering firm in Bristol, which the company assesses as outside IR35 because Kate controls how the work is done, supplies her own equipment and has a genuine right of substitution. She works on site three days a week. Bristol is a temporary workplace, so the company reimburses her train fares and lunches while travelling without tax, National Insurance or a P11D entry. In March 2027 the client extends the contract to 30 months in total. From that date Bristol becomes a permanent workplace, because she spends more than 40% of her time there over an expected period of more than 24 months. Reimbursements after that date are taxable earnings and go through payroll; those made before stay tax free.

What mistakes come up?

Assuming outside IR35 means every journey is deductible. The site must still be a temporary workplace.
Counting 24 months from the start of the contract instead of watching for the date an extension changes the expectation.
Carrying on paying tax free travel after a contract is reassessed as inside IR35.
Using a home office argument that EIM32800 is designed to reject.
Keeping no record of contract dates, extensions and days on site, which is the evidence HMRC asks for first.

Contractors still deciding how to work may find our comparison of umbrella and limited company working useful, since umbrella employees are normally caught by section 339A.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.