HMRC Rules on Contractor Accommodation: What You Can Claim

HMRC's rules on contractor accommodation are frequently misunderstood. Some contractors over-claim. Others under-claim. Getting it wrong in either direction has consequences — unexpected tax bills or missed legitimate deductions. Here's what you actually need to know.

The Basic Rule: Is There a "Temporary Workplace"?

The entire framework hinges on one concept: the temporary workplace, defined under ITEPA 2003. If you're working at a temporary workplace, accommodation costs to work there can be reimbursed tax-free by your employer — or deducted as a business expense by your limited company.

The key test: is the posting expected to last less than 24 months at a single location? If yes, it's a temporary workplace. If the assignment was always expected to last longer than 24 months, it's not — and accommodation costs cannot be claimed.

Important nuance: the 24-month clock starts from the point at which you expected the posting to last that long, not from the start of the posting. A contract that started as 12 months but was extended to 30 months part-way through may still qualify for the early period.

Limited Company Contractors

If you operate through your own limited company (a Personal Service Company or PSC), the rules work like this:

• Your limited company can pay for accommodation at the temporary workplace directly — this is a business expense and reduces corporation tax
• The accommodation must be genuinely for work purposes, not replacing your permanent residence
• The "dual purpose" problem: if HMRC determines the accommodation was providing you with a permanent home rather than temporary work accommodation, it becomes a taxable benefit in kind — your company pays it but you pay income tax on the value
• Keep records: site address, evidence the posting was expected to be temporary, duration at point of booking

Note that IR35 status doesn't directly affect accommodation rules, but it affects whether you're operating through a PSC at all — which changes the entire picture.

Umbrella Company Contractors

Umbrella workers are employees of the umbrella company. Accommodation reimbursement follows the same temporary workplace rule, typically handled through expenses claims processed by the umbrella company.

Be cautious of schemes that claim to maximise accommodation tax benefits. HMRC has successfully challenged arrangements where umbrella companies structured payments in ways designed to exploit the accommodation rules artificially.

Employed Contractors (PAYE)

If you're employed directly by a firm and sent to work at a temporary location, your employer can reimburse accommodation costs tax-free under ITEPA 2003 Section 337 (or 338 for travel costs). This is standard practice for infrastructure firms managing mobile workforces.

What Records Should You Keep?

• Site address and distance from your permanent home
• Duration of the contract at the point of booking accommodation
• Receipts and invoices for all accommodation costs
• Evidence the posting was expected to last less than 24 months (contract documents, emails)

Common Mistakes to Avoid

• Claiming accommodation when working at a client's permanent workplace (even if you're a contractor, if it's the client's fixed place of business and you attend regularly, HMRC may not accept it as a temporary workplace)
• Claiming for accommodation that is very close to your permanent home — HMRC scrutinises this
• Not documenting the temporary nature of the posting at the time of booking
• Assuming that because a role is "contract" it automatically qualifies as a temporary workplace

The Practical Checklist

Before claiming accommodation expenses, run through this:

1. Is this a posting at a location away from my permanent home?
2. Was this posting expected to last less than 24 months when I took it on?
3. Is the accommodation genuinely temporary — not replacing my permanent residence?
4. Do I have documentation to support all three of the above?

If you can answer yes to all four, you're on solid ground. If you're uncertain, speak with a specialist contractor accountant before making the claim.