Following on from the increased activity in the construction sector in recent times we have seen a rise in requests for advice on and assistance with the operation of Relevant Contracts Tax (RCT) within their business.
The Relevant Contracts Tax system has been totally overhauled since 1st Jan 2012. Gone are the paper RCTDC forms that some would have been familiar with as the system is now fully electronic. The administrative obligations now placed on principal contractors are onerous and significant penalties can apply where these obligations are not met.
1) Notify Revenue of the contract on ROS
- Where a new contractor is taken on, the contract must be notified on Revenue’s Online Service. The details required to set up a new contract are:
- Name and tax registration number of the subcontractor
- Type of work to be carried out
- Address of the site where the work is to be carried out
- Estimated term of contract
- Estimated value of the contract (how much will be paid to the sub-contractor)
2) Create / obtain a site identifier number
When the contract is set up Revenue will provide a site identifier number which is relevant for all contracts being carried out on that site. This site number should be used for other new contracts set up at that same location.
3) Notify Revenue of payments to be made to subcontractor
Revenue must be notified every time before a payment is made to a sub-contractor. It is essential this process is followed before the payment is made to the sub-contractor or penalties may arise.
4) Obtain the Payment Notification Acknowledgement from Revenue
When Revenue is notified of the payment to be made to the subcontractor, Revenue will issue a payment notification acknowledgement which will show the rate of RCT to be withheld from the sub-contractor. This is the authorisation for the principal to withhold RCT on the gross payment due to the sub-contractor. A copy of this should be given to the sub-contractor along with the net payment.
5) Submit monthly / quarterly RCT returns to Revenue
Review the deduction summary details as per ROS and submit the relevant RCT30 return. At this stage any RCT withheld from subcontractors will be paid to Revenue.
6) VAT is to be accounted for on the reverse charge basis
The principal contractor is obliged to account for VAT on the supply of services from a VAT registered sub-contractor on the reverse charge basis. This means the principal contractor will account for sales VAT on the amount invoiced from the sub-contractor. Where they are entitled to do so the principal can then claim a VAT input credit of the same amount in the relevant period.
Current RCT penalty guidelines
Revenue introduced a new penalty scheme in January 2015 for non-operation of Relevant Contracts Tax. Where payment notifications are not submitted to Revenue the penalties applied depend on the relevant RCT deduction rate of the sub-contractor.
The penalties applied are as follows:
- 3% penalty for 0% rate sub-contractor
- 10% penalty for 20% rate sub-contractor
- 20% penalty for 35% rate sub-contractor
- 35% penalty for an unregistered sub-contractor
Due to the potentially significant penalties above and increased Revenue audits and reviews in this area it is essential for principal contractors to have a solid understanding of the Relevant Contracts Tax system and to ensure the system is operated correctly within their business.
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For more information about how we can help you comply with your RCT obligations or with any other tax matters please feel free to contact our tax team.