The inside-IR35 travel restriction: what changed and why
Inside-IR35 engagements are treated as a form of employment. The tax rules reflect that by restricting travel relief to mirror the rules that apply to employees. For an employee working at a fixed office or site, the daily commute from home is non-deductible ordinary commuting, not business travel. The same logic applies inside IR35: if you are caught by the intermediaries rules and working under supervision, direction or control, the client site becomes your permanent workplace for that engagement, and the journey there is ordinary commuting.
This rule was tightened in the April 2016 reforms. Before then, a contractor could argue travel was business travel even if caught by IR35, using the temporary-workplace relief. From April 2016, that option was closed for workers engaged through an intermediary under direction or control. Section 338A and 339A of ITEPA 2003 now explicitly restrict travel and subsistence relief for such workers. The restriction applies whether the engagement is caught under Chapter 8 (small-client, where the PSC self-assesses) or Chapter 10 (medium/large client, where the fee-payer operates PAYE on your behalf).
The practical cost is severe. A contractor commuting 30 miles each way, 5 days a week, to the client site loses roughly £4,000 to £5,000 per year in mileage relief (at 55p per mile for the first 10,000 miles). Over a three-year inside-IR35 assignment, that is a £12,000 to £15,000 swing compared to being outside IR35. For a London-based contractor commuting from the suburbs or the Home Counties, the annual loss can exceed £6,000. This is one of the most significant hidden costs of inside-IR35 status and is often not factored into rate negotiations.
The rationale is employment-mirroring. Just as an employee cannot claim tax relief for ordinary commuting from home to the office, a contractor caught by IR35 cannot claim it either. The law treats the intermediary engagement as employment-like, so the tax treatment follows. This creates a powerful incentive to negotiate a higher assignment rate when status is uncertain or determined to be inside, because the effective cost to the contractor is materially lower than the gross invoice value.
Outside-IR35: the 24-month and 40% rule explained
Outside-IR35 contractors keep the temporary-workplace relief, which sits within the wider rules covered in our guide to allowable contractor expenses. The rule is that travel to a temporary workplace is deductible, but the workplace stops being temporary (and becomes permanent, making travel non-deductible) once you have spent, or expect to spend, more than 40% of your working time there over a period exceeding 24 months. This is a critical relief for contractors and is the exact opposite of the inside-IR35 rule.
The clock runs on expectation, not calendar time. This is the most important point in understanding the rule. If the contract says the engagement is a 12-month project, the site is clearly temporary. If the contract is three years or indefinite, and you reasonably expect to spend more than 40% of working time there, the temporary-workplace relief stops from that point onward. You do not get to claim travel for two full years and then lose it; relief ends as soon as the 24-month/40% expectation is formed. HMRC views this as a factual question: at the start of the engagement, was it reasonably expected to exceed 24 months at more than 40% of time? If yes, the site is permanent from day one.
Example one: A software contractor is engaged for a two-year build at a client office, full-time. The engagement is 24 months and 100% of working time is at that site, so the 40% threshold is exceeded and the timeline exceeds 24 months from the start. Travel relief is not available at all, even on day one, because the expectation at contract-signing is that the workplace is permanent. By contrast, if the contract is for 12 months and full-time, the site is temporary (under 24 months), and travel is deductible throughout that 12-month period.
Example two: A network engineer joins a three-month upgrade project, expected to run full-time on-site. Three months is under 24 months, so the site is temporary and travel is deductible. The project then extends to nine months (still under 24 months). Travel remains deductible for the full nine months. If the client then says the work will continue indefinitely, the engineer can continue claiming travel as long as the expectation remains that fewer than 40% of hours in the next 24 months will be at this site (if the engineer splits time between this client and other work, the test may still be met).
Outside-IR35 contractors often use this rule to claim travel on long engagements by structuring them as rolling 12-month contracts, provided the facts support that the 40% threshold is not expected to be exceeded. The moment the contract is renewed and the total expected time exceeds 24 months, or the facts show that more than 40% of working time is expected at that site, the relief is at risk. The key is ongoing, honest assessment: if the situation changes, the contractor should document it and adjust claims accordingly. HMRC will challenge contractors who claim travel on indefinite-length engagements without clear supporting evidence of the percentage-of-time test.
Mileage relief: the 2026/27 rates
From 6 April 2026, the Approved Mileage Allowance Payment (AMAP) for business motoring in your own car or van is 55p per mile for the first 10,000 business miles, then 25p per mile for miles above that. This is up from 45p for the first 10,000 miles (the 25p rate was unchanged). The rates are tax-free; you do not report them as income. These rates are effectively frozen unless Parliament changes them; they were last increased in April 2026 after remaining at 45p and 25p for many years.
The AMAP rates are a critical planning point. A contractor driving 10,000 miles per year at 55p saves £5,500 in net cost compared to claiming no relief (assuming a 20% income tax rate, the saving is roughly £1,100 in cash). Multiply that over a three-year outside-IR35 engagement and the cumulative saving is £3,300 or more. This is why outside-IR35 status is so valuable for contractors in roles that require significant travel.
These rates apply whether you are inside or outside IR35, but the deductibility differs. Outside-IR35, you can claim them for travel to a temporary workplace (subject to the 24-month rule). Inside-IR35, you cannot claim them for home-to-client commuting. However, if you drive between clients or to meetings during an inside-IR35 engagement, those journeys may be deductible at the AMAP rate. The same applies to travel to training or conferences that occur during the engagement, away from the primary site.
A key point: AMAP applies to ordinary motoring. The 55p/25p rates are fixed and do not vary by location, fuel costs, or the type of vehicle (provided it is a car or van and used for business). If you use a company car or a hire car, different rules apply. If the company provides and owns the car, you cannot claim AMAP; instead, you have a taxable benefit on the vehicle (based on the P11D value and the percentage of business use) and a potential statutory mileage rate for business purposes. Mileage relief typically applies only to your own vehicle, purchased and run by you, so the risk and cost are yours.
What inside-IR35 workers can still claim
Inside-IR35 status is not a complete ban on travel relief. Three categories of travel expense may still be deductible.
Travel between client sites. If your inside-IR35 engagement involves working at multiple locations, travel between them during the working day (not the initial commute from home to the first site) can remain deductible because it is travel in the performance of the duties rather than ordinary commuting. Take advice before relying on this: the intermediaries travel and subsistence restriction can also bite on some multi-site patterns, and the analysis is fact-specific.
Overnight stays and subsistence. Do not assume hotel and meal costs escape the restriction. Subsistence relief follows the travel: where the journey to the client site does not qualify because the site is a permanent workplace for the engagement, accommodation and meals linked to attending that site are generally not deductible either. The travel and subsistence restriction for workers engaged through intermediaries covers both legs. If an engagement genuinely involves qualifying travel in the performance of the duties, associated subsistence can follow it, but that is the exception and needs advice, not the default.
Travel for training, conference or induction (limited). If the engagement includes mandatory training or induction at a location other than the primary client site, and the cost is clearly for the engagement, it may be claimed. However, travel to attend a pre-engagement interview, or to attend the initial induction as part of the hiring process, is typically not deductible because it is not yet on the engagement. Once work starts, the permanent-workplace rule kicks in. This boundary is strict and depends on the timing.
The Chapter 8 vs Chapter 10 distinction: does it matter for travel?
Travel relief depends on status (inside/outside IR35), not on which chapter of the legislation applies. Both Chapter 8 (where you self-assess for a small client) and Chapter 10 (where the fee-payer operates PAYE) impose the same restriction: home-to-client travel is not deductible inside IR35.
The practical difference is in how the restriction is enforced. Under Chapter 10, the fee-payer calculates the deemed payment before you receive cash, and there is no 5% expenses allowance to absorb travel costs. Under Chapter 8, you claim the 5% administrative allowance and any deductible expenses at year-end self-assessment. That 5% allowance is a small buffer, but it does not allow you to deduct non-allowable travel; it is a fixed percentage deduction, not an expense claim.
The bottom line: Chapter 8 gives you a 5% cushion (retained under Chapter 8, but gone under Chapter 10) but does not override the inside-IR35 travel restriction.
The 5% allowance and how it differs from travel expenses
Under Chapter 8, the PSC can deduct a flat 5% of engagement income as an administrative expenses allowance. This is not a travel claim; it is a fixed allowance that covers costs broadly. Under Chapter 10, this allowance is abolished, and the fee-payer treats the payment as a deemed direct payment to an employee with no such allowance.
The 5% allowance sounds generous, but it is not a replacement for travel relief. If your actual allowable expenses (accountancy fees, software, genuine business insurance) exceed 5% of income, you can claim the excess under Chapter 8. But the allowance itself is not a travel-relief substitute; non-allowable costs (like home-to-client commuting) cannot be deducted at all, whether under the 5% or on top of it.
For a typical contractor earning £50,000 from an inside-IR35 engagement, the 5% allowance is £2,500. Actual allowable expenses might include accountancy fees (£1,500), software (£800) and business insurance (£400), totalling £2,700 before the 5% boost. The 5% gives a buffer against shortfall, but travel is not in the picture because it is a non-allowable cost inside IR35.
Claiming travel: proof and timing
Any travel expense you do claim (mileage under AMAP, subsistence while working away, or travel between clients) must be backed by records at the time or contemporaneously. HMRC expects a mileage log (date, route, business purpose, miles) and receipts for accommodation or meal costs. Rough estimates or end-of-year guesses are not acceptable.
For mileage, AMAP relief is claimed on a tax return (either in the PSC's accounts or the individual's self-assessment, depending on the chapter and how the engagement is structured). For subsistence, receipts must be kept. HMRC is particularly strict on subsistence claims because they can mask personal expenditure, so expect detailed scrutiny if the amounts are large or the engagement is short-term.
The bigger picture: inside vs outside, and the status decision
The travel-expense difference is one of the three or four biggest financial levers between inside-IR35 and outside-IR35 status. The others are the 5% allowance (Chapter 8 only), the tax rate (inside, you lose the ability to extract profits via dividends at 10.75%, instead drawing taxed income or salary), and pension contributions (these remain efficient inside IR35, but are harder to fund if cash flow is tight). Understanding each lever helps you model the true cost or benefit of a given assignment.
For a contractor working in London or the South East commuting 20+ miles per day, the travel restriction can cost £3,000 to £5,000 per year in lost relief. Over a career, that is significant. This is often overlooked in the inside-IR35 / outside-IR35 debate; many contractors focus on the deemed-payment calculation or the risk of a wrong status determination, but miss the fact that even a correct inside-IR35 status is financially painful if you commute. The travel loss compounds if the engagement is multi-year: a three-year inside-IR35 assignment with a £3,500 annual travel loss is a £10,500 cumulative cost, compared to zero if you had been correctly assessed as outside.
If you are facing an inside-IR35 determination, the travel impact should be part of the cost-benefit analysis. Three questions should guide your response: (1) Is the engagement genuinely inside based on the facts (working practices, control, substitution rights), or is the determination a blanket or unreasoned decision? (2) Can you use an umbrella instead of a PSC (often simpler and more transparent for inside work)? (3) Does the assignment rate compensate for the travel and other inside-IR35 costs? A £60,000 inside-IR35 rate might look like £50,000 once tax, NIC and the travel loss are factored in. If the rate does not account for the loss, you should challenge the determination using the client-led disagreement process or negotiate a higher rate before accepting the engagement.
Outside-IR35 contractors: the temporary-workplace rule in practice
Outside-IR35 contractors keep more travel relief, but they need to be disciplined about the 24-month rule. The rule is not a licence to claim travel indefinitely; it is a specific test based on expectation and percentage of time.
A contractor on a rolling series of 12-month contracts at the same site, where each renewal is treated as a separate engagement, can claim travel throughout if the 40% threshold is not breached. But the moment the contract is formalised as a two-year or longer commitment, or the facts show that more than 40% of working time is expected at the site, the relief stops. HMRC watches this area carefully; contractors who claim travel on indefinite-length engagements without documenting the 40% test are at audit risk.
The test is also backward-looking. If an outside-IR35 contractor claims travel for 18 months and then the engagement continues, and the total is now 30 months at one site with 60% of working time there, HMRC can challenge the later claims. The entire history is reviewed once the 24-month/40% threshold is crossed.
Travel relief in practice: HMRC expectations and audit risk
HMRC's approach to travel relief is outcome-focused. Agents and auditors will ask: are the claimed miles consistent with the engagement location, duration, and structure? Can the contractor show a contemporaneous mileage log? Are the subsistence claims backed by receipts? For outside-IR35 contractors, the main audit risk is overstatement of the 24-month/40% test: claiming the site is temporary when the facts show it was always intended to be permanent, or the percentage of time spent there was actually above 40%. HMRC looks at the written contract, any email exchanges about extension or renewal, and the actual time records (timesheets, expense submissions, calendar blocks at the site) to build a factual picture.
For inside-IR35 contractors, the audit risk is minimal on travel itself (because relief is not available, there is nothing to overclaim), but it is important to ensure you are not accidentally claiming it. If travel expenses appear on a self-assessment return or in the company accounts for an inside-IR35 engagement, an HMRC auditor will question them and disallow them. This is one of the few areas where a mistake can be obvious and will result in a straightforward denial.
The key to staying compliant is honesty and contemporaneous records. Do not estimate or backfill mileage logs. Do not claim travel that does not fit the rules. If you are uncertain about a claim (for example, travel to a client site that is part of a wider engagement but might be temporary), ask your accountant or the firm before claiming. A few pounds of extra caution now will save hundreds or thousands in a future audit.
What you should do: planning and compliance
If you are inside-IR35, accept that home-to-client travel and the subsistence that goes with it are generally not deductible, and factor that into your rate negotiation. The assignment rate needs to be high enough to cover the lost mileage relief, any accommodation and meals you incur to attend the site, and the other inside-IR35 costs. A contractor staying away three nights a week on a distant inside-IR35 engagement should price those hotel and meal costs into the rate rather than expect tax relief on them.
If you are outside-IR35, document the 24-month/40% rule at the start of the engagement. In writing, confirm with the client (or your agency) the expected length and the percentage of time at the site. Keep a mileage log as evidence. If the engagement renews or changes, revisit the calculation. This protects you in an HMRC enquiry and avoids surprises at year-end. A simple log format (date, route, business purpose, miles) kept in a spreadsheet or app is sufficient; it does not need to be elaborate.
For both routes, keep contemporaneous records: mileage logs, receipts, dated notes. Do not backfill records at year-end. If HMRC challenges a travel claim, the quality of your records makes the difference between agreement and a denied claim. A contractor with a detailed log spanning the engagement is far more credible than one who reconstructs miles from memory six months after the event.
If your status is unclear, or the client has issued a Status Determination Statement that you believe is wrong, use the client-led disagreement process to seek a review. Status directly affects travel relief, so getting the status right at the start is crucial. A wrong inside-IR35 determination can cost thousands in travel relief alone, and the cost accumulates over the length of the engagement.
We can help you understand the tax implications of an inside-IR35 or outside-IR35 determination, model the financial impact (including travel relief), and plan your structure and rate to reflect the true after-tax cost. Check your IR35 status or get in touch for advice.