Can HMRC refuse tax relief for travel expenses?

Xero Queen
6 days ago
3 min read

Short answer: yes — it really can be true. HMRC can refuse tax relief for travel expenses after you move from being a sole trader to trading through your own company, even where the journeys look identical.

The reason is that different tax rules apply depending on your legal status and whether the IR35/off‑payroll rules bite.

1. The starting principle (often misunderstood)

HMRC’s general rule is simple: Travel expenses are only deductible if they are not “ordinary commuting”. Ordinary commuting means travel between your home and a permanent workplace — and relief is blocked regardless of whether you are self‑employed or employed.

2. Why things worked when you were a sole trader

As a sole trader, you are not an employee. Each client site is assessed on its facts.

If:

you worked at multiple client locations, and
no location was visited regularly and frequently enough to be your business base,

then each location could be treated as a temporary workplace, and travel from home was usually allowable.

✅ This is why many sole traders legitimately claim mileage from home to client premises.

But even as a sole trader there is a risk:

If you attend the same place habitually, HMRC can argue that it has become your permanent workplace — killing the claim.

3. What changes once you trade through your company

Once you incorporate, you become an employee/director of your company for tax purposes.

That brings in employee travel rules under ITEPA 2003.

Situation	Relief allowed?
Home → permanent workplace	❌ No
Home → temporary workplace	✅ Yes (subject to rules)
Workplace → client → workplace	✅ Yes

So far, still not disastrous.

4. The 24‑month rule (key limitation)

For employees and directors, HMRC applies the 24‑month rule:

A workplace ceases to be temporary if:

attendance lasts, or is expected to last, more than 24 months, and
you spend 40% or more of your working time there.

Once either condition is met:

travel becomes ordinary commuting, and
relief stops immediately — not after month 24.
So even outside IR35, long client contracts can block mileage claims.

5. Where things really go wrong: IR35 / off‑payroll

HMRC treats all travel between your home and places you work as ordinary commuting, no matter how temporary the site.

That means:

❌ no mileage
❌ no train fares
❌ no subsistence linked to the journey

Even worse, this restriction can apply even when the engagement is technically outside IR35 if you work under supervision, direction or control via an intermediary.

6. Why incorporation causes lost relief (the real answer)

Your structure has changed from:

Self‑employed business owner to an Employee of an intermediary (your company)

That single change:

introduces employee travel rules,
brings in the 24‑month test,
and exposes you to IR35/off‑payroll commuting restrictions.

So yes — identical journeys can flip from allowable to non‑allowable purely because of incorporation.

7. When relief is still possible after incorporation

You may still claim travel expenses if all of the following apply:

✅ the engagement is outside IR35
✅ you are not under supervision, direction or control
✅ the workplace is genuinely temporary
✅ the 24‑month threshold has not been breached

If even one of these fails, relief can be blocked.

8. Bottom line

HMRC is not contradicting itself — it is applying different legal tests.
Incorporation can genuinely remove travel relief.

Summary

Yes, HMRC can legitimately refuse tax relief for travel expenses after you move from being a sole trader to trading through a limited company.

As a sole trader, travel from home to multiple client sites often qualifies for tax relief because each site may be treated as a temporary workplace, provided no site is visited regularly and frequently enough to become a permanent base.
Once you incorporate, you become an employee/director of your company, so the employee travel rules apply instead.
Employees cannot claim tax relief for ordinary commuting (home to a permanent workplace), but they can claim for travel to a temporary workplace, subject to the 24‑month rule and the 40% working‑time test.
If your work is caught by the IR35 / off‑payroll working rules, or you work via an intermediary under supervision, direction or control, HMRC treats all journeys between home and work sites as ordinary commuting, regardless of how temporary the work is.
This is why identical journeys that were allowable as a sole trader may stop qualifying after incorporation.