Relevant Contracts Tax
What is Relevant Contracts Tax (RCT)?
RCT applies to payments made by a principal contractor to a subcontractor under a relevant contract (this is a contract to carry out, or supply labour for the performance of relevant operations in the construction, forestry or meat processing industry). RCT applies to both resident and non-resident contractors operating in the construction, forestry or meat processing industry.
RCT is a tax deduction system whereby a principal contractor registers with the Revenue any relevant contract. This is done using the Revenue Online System. See below for more details.
How does RCT work?
Tax is deducted by a principal contractor on payments to a subcontractor according to the rate advised by Revenue. Where tax is deducted, the subcontractor will be notified through Revenue Online. See below for more details on the new eRCT system.
RCT applies to the following:
RCT does not apply to professionals such as architects, surveyors etc.
Online RCT
The new online system for relevant contracts tax came online as of 1 January 2012. The system is now mandatory and paper returns will no longer be accepted.
In order to use the new service, principals are required to register, under their own names or through their agents, for the Revenue Online Service which will allow individuals or their agents to liaise with Revenue on all matters related to RCT or any other taxes relating to their business.
The principal new requirements of the online system are the “contract notification” and “payment notification” obligations, outlined below.
Contract notification
When a principal enters into a relevant contract with a subcontractor, he/she will be obliged to provide Revenue with details of the contract online, including a declaration that the contract being entered into is not a contract of employment. Revenue have issued a guidance note for people entering into relevant contracts from 2012 onwards. It is available here.
Payment Notification:
Under the new system, principals must notify the Revenue before they make payments to subcontractors. Once Revenue has received the notification, they will issue a Deduction Authorisation which advises the principal what level of tax should be withheld and paid over to Revenue. The amount to be deducted will be one of the following percentages:
0% – for subcontractors who are registered and up to date with their taxes.
20% – for subcontractors who are registered and substantially compliant.
35% – for subcontractors who are not registered and/or not compliant with their tax obligations.
Revenue has produced a video illustrating online payment notifications below:
Subcontractors
The system is also available for subcontractors to use. Among the services available, registering will allow them to check online to see contracts that have been registered with Revenue and that tax withheld from payments has been paid by the principal over to Revenue. The system will facilitate more speedy reclaims and allow the subcontractor to have immediate oversight of his or her RCT position.
Revenue has also produced a video guide as to how subcontractors can avail of the service.
eRCT – guidance for subcontractors
Penalties
Failure to adhere to the new system can attract stiff penalties. Under section 530F TCA 1997, where a payment is made to a subcontractor without obtaining the deduction authorisation from Revenue, the Principal may be subjected to a €5,000 penalty in addition to tax at 35%.
