What is it?
Relevant Contracts Tax (RCT) is a withholding tax which the Revenue Commissioners requires Principals operating in the construction, forestry and meat-processing industries to withhold from a sub-contractor engaged in a contract to carry out works on their behalf. The rates of tax are 0%, 20% and 35%
What activities are covered under RCT?
RCT covers certain activities from the construction, forestry and meat-processing sectors.
Construction activities include;
- constructing, altering or repairing building structures
- installing, altering or repairing security, heating or air conditioning systems
- cleaning buildings internally and externally in the course of construction (not including normal maintenance)
- works which are an essential part of, are in preparation for, or are completing other construction works such as site clearing, excavating, landscaping etc
- transporting someone else’s materials or machinery for use in any of the activities noted above
See the Revenue’s Relevant Contracts Tax Manual for a complete list of all operations. https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-18/18-02-01.pdf
Forestry activities under RCT include;
- thinning, lopping, felling or planting trees in woods, forests or other plantations
- maintaining woods, forests and plantations
- hauling thinned, lopped or felled trees
- preparing land for planting (this includes woods or forests that have been harvested)
- processing wood in sawmills or similar premises
- transporting someone else’s materials or machinery for use in any of the activities listed above (known as haulage for hire).
Meat processing activities under RCT include;
- slaughtering certain animals and poultry
- catching domestic fowl, turkeys, guinea-fowl, ducks or geese
- cutting, boning, sorting, packaging, rewrapping or branding certain slaughtered animals and poultry (and any other similar processes)
- preserving or rendering the carcasses of slaughtered animals and poultry
- loading, unloading and hauling carcasses at any premises where the above activities take place
- cleaning any premises where the above activities take place
- grading, transporting and determining the sex of day-old chicks
- transporting someone else’s animals, poultry, materials, machinery or other goods connected to any of the activities listed above (known as haulage for hire).
Who is a principal contractor?
You are a principal contractor if you use a subcontractor to carry out activities on behalf of your business (in the constructions, forestry or meat processing sector).
You are also a principal contractor if you:
- are connected to a company involved in any of the above activities
- are a local authority, public utility society or housing association
- carry on any gas, water or electricity work
- carry on any hydraulic power, dock, canal or railway work
- carry out the installation, alteration or repair of telecommunications systems.
Principal contractors must register with Revenue.
Subcontractor or employee?
As a principal contractor, you must decide whether your contract is with an employee or a self-employed person. Deciding what category a worker falls into depends on:
- what work they do
- how their work is managed
- the terms and conditions under which you hired them
The following checklists give an overview for deciding if a worker is an employee or a subcontractor.
A worker is normally an employee if they:
- are directed by someone on how, when and where to work
- have set working hours and receive a fixed wage
- supply labour only
- have no personal financial risk relating to the work
- cannot subcontract the work
- are covered under the employer’s insurance
- work for only one person or business.
A worker is normally self-employed if they:
- control how, when and where the work is done
- control their working hours
- are exposed to financial risk
- control costs and pricing
- can hire other people to complete the job
- provide their insurance cover
- own their business
- can provide the same services to more than one person or business at the same time.
What is a contract notification?
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)
On submitting a contract notification, you will receive a Site Identifier Number (SIN) for the site or project. The SIN is created when you enter the site or project name and address in the Revenue Online Service (ROS). Revenue will notify all subcontractors of the SIN on their contract confirmation letter. You must use this SIN for all contracts that you submit to us relating to that site or project.
What is a payment notification?
Before you make a payment to a subcontractor, you must notify Revenue of the gross amount of the intended payment. 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.
Revenue will issue a payment notification acknowledgement which will show the rate of RCT to be withheld from the sub-contractor (being 0%, 20% or 35%). 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. This is known as the deduction authorisation.
What determines the RCT rates for subcontractors?
The RCT tax rate will depend on your compliance record with Revenue. The three tax rates in the RCT system for subcontractors apply as follows:
- an up-to-date tax compliance record: 0%
- a substantially up-to-date tax compliance record: 20%
- a poor tax compliance record, or for those who have not registered with Revenue: 35%.
As a subcontractor, how do I get the tax credit for RCT deducted from my invoices?
Revenue automatically credit your tax record with any RCT that the principal has deducted. You can use this RCT credit against other tax due once you have filed your tax returns. You will be able to view all your RCT transactions and request statements as required on your Revenue Online Services Account (ROS).
What penalties could a principal contractor face for non compliance with the RCT system?
If a principal contractor makes a payment for a relevant contract to a subcontractor, other than as shown on a deduction authorisation, this is noted as an unreported payment. If you make an unreported payment, you are liable for a penalty.
The following penalties apply to each unreported payment:
|0% deduction rate||3% of the relevant payment|
|35% deduction rate||20% of the relevant payment|
|20% deduction rate||10% of the relevant payment|
|Unknown||35% of the relevant payment|
Due to the potentially significant penalties above and the increase in 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. If in doubt, ask – Drop us an email to firstname.lastname@example.org