Following on from renewed activity in the construction sector recently we have seen a rise in enquiries for assistance with the operation of Relevant Contracts Tax (RCT).
The Relevant Contracts Tax system has been completely revamped since 1st Jan 2012. Gone are the paper based RCTDC forms and C2 Cards that some would have been familiar with as the new compliance system is now online “eRCT.
The definition of a principal contractor has been extended to include those who carry out the installation, alteration or repair of telecommunications systems. ‘Relevant operations’, i.e. the type of activities to which RCT applies has also been broadened to include the repair or alteration of systems of telecommunications, previously only the installation of such systems was within the scope of RCT.
From 1 January 2012 all RCT compliance, filing and payments, is conducted online through ROS. All principal contractors should ensure they are registered to use the ROS facility if not already registered. Subcontractors should also register for ROS in order to access details regarding their RCT transactions.
The new RCT system has three deduction rates; the rate applicable to each subcontractor is determined by their own tax compliance history and status. Subcontractors who are fully compliant and satisfy Revenue of certain criteria have the benefit of a ‘Zero’ rate of RCT being applied, i.e. they may receive payments without an RCT deduction, provided they keep their tax affairs up to date. The new standard rate for RCT is 20% and is applicable to all registered subcontractors with a good compliance record. The 35% rate, will apply to all other subcontractors, in particular, subcontractors who are either not registered with Revenue for RCT or those who are registered, but may have tax compliance issues to be addressed.
Subcontractors are no longer able to apply for interim refunds of RCT deducted during the tax year. Any refunds may only be refunded after the income/corporation tax return for the relevant tax year has been filed and paid.
New compliance procedures:
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
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.
Notify Revenue of payments to be made to subcontractor
Prior to making each payment a principal must obtain a deduction authorisation by inputting a Payment Notification on the eRCT system. A principal should indicate the full amount of the payment due to be made to the contractor. It is essential this process is followed before the payment is made to the sub-contractor as penalties may arise. Revenue recently introduced a new RCT penalty regime which applies from 1 January 2015. Under the new regime, where a principal contractor makes a payment to a subcontractor without the required deduction authorisation from Revenue, a penalty of 3% to 35% will apply. The rate depends on the tax status of the subcontractor.
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.
Revenue prepares a pre – populated period end return known as a deduction summary. This lists the payments submitted to Revenue during the period and the total RCT you are due to pay. The due date for confirming or amending the deduction summary is the 23rd day of the month following the period end. If the information is correct the deduction summary may be accepted or the details can be amended before the return due date. Where a principal amends any details on a deduction summary after the due date for that period an automatic surcharge of €100 will apply in addition to the tax due per the amended return.
Both resident and non-resident contractors may seek refunds/offsets of RCT withheld within the statutory four year time limit.
Although RCT places a heavy burden on business it can be managed relatively smoothly with the proper administration. Whether you are a contractor or subcontractor our office can help keep your RCT affairs in order.