The definition of a “principal” includes a person or company who engages a contractor and who;
For the purposes of RCT, relevant construction operations have a wide meaning. In particular you should note that such operations include:
It is important to note that professional fees relating to construction works (e.g. architects, quantity surveyors etc.) are not within the RCT net provided such professional services do not involve the supervision of labour or the co-ordination of such labour.
As can been seen from the above the definition of “relevant operations” is very broad and would generally include the following:
RCT is a withholding tax whereby a person known as a “principal contractor” is obliged to retain tax from amounts payable to sub-contractors engaged to carry out “relevant operations” in Ireland. If relevant operations are carried out in Ireland, RCT applies to the contract regardless of the residence of the subcontractor.
Non-resident principals who subcontract work which takes place in Ireland are obliged to operate RCT. While a non-resident principal or subcontractor may not have an obligation to register for other taxes in Ireland, they may have to register and operate/suffer RCT.
Yes. Taxpayers should therefore be careful to consider if any contracts which they take on could be as a sub-contractor. If this was to happen they would have to obtain the necessary clearance etc. in order to avoid the imposition of RCT on payments made to them
The old system involving the issuance of C2 Cards and payments cards is no longer applicable. A new electronic RCT system is in operation. All principals are obliged to engage electronically with Revenue and have to:
As mentioned earlier payments made which is not under the terms of a deduction authorisation exposes the Principal to a liability to Revenue of the amount (35%) which should have been withheld and penalties.
Where the principal submits the details of the payment to the Revenue before the due date for that period’s return, the tax payable will be limited to that which would have applied to the payment (0%, 20%, or 35% as appropriate). There is a Code of Practice for Revenue auditors which provides for a “self-correction” mechanism within 1 year where errors are discovered.
In certain cases, particularly where no loss of revenue arises to the Exchequer, or in the case of genuine mistakes, the interest and/or penalties can be eliminated or mitigated. Revenue have outlined these as;
If you do not comply with this system the following new penalties will apply: Principal contractors who fail to operate RCT on relevant payments to subcontractors will be liable for a penalty proportionate to the amount of the tax that should have been deducted.
The above civil penalties of 3%, 10%, 20% and 35% are penalties for not operating the e-RCT system correctly and they are in addition to the applicable RCT due (up to 35%) and the penalties are not tax deductible for corporation or income tax purposes.
Even though RCT has been in effect in the construction sector for some 46 years, it is the tax where most errors are found when a Revenue Audit is conducted on a construction sector company. Indeed,
Revenue are now targeting this sector for that very reason as RCT tax errors are both easy to identify and high yielding.
In general all construction operations that form part of ‘rendering a building complete’ are subject to RCT. This is why the likes of cleaning, laying carpets etc. all fall under the RCT rules when they are form part of a contract to build or renovate a building.
The most common areas where we see RCT is not applied where it should is;
Even if the sub-contractor issues the principal with an invoice with VAT, it is still the Principals’ responsibility to operate the RCT reverse charge VAT system correctly and they must notify the subcontractor that they have issued the invoice incorrectly.