Therefore, if you are employing subcontractors, or you are being employed as a subcontractor, it will almost definitely affect you. It also applies to non-resident contractors and subcontractors carrying out work in this country. You can be both a main contractor and a subcontractor. Failure to operate the system properly can, and does, lead to large penalties and interest being applied if audited.
Changes – Since 1 January 2012 there have been major changes in the way the RCT system operates. All transactions must now be carried out through the Revenue Online Service (ROS). The main deduction rate is 20% and not 35% as it previously was. Tax withheld is offset against your returns as they are filed and no refunds are given until all your returns, including your income tax or corporation tax returns, are filed
VAT and RCT – If you are a subcontractor you should not charge VAT on your invoice to the main contractor. The invoice issued should replicate a normal VAT invoice but without a VAT amount being added. It should carry the endorsement that VAT on the supply is to be accounted for by the main contractor. You must register for VAT if your turnover is above, or will be above, €37,500 in any 12-month period. Even though you do not charge VAT to the main contractor, providing you are registered you may reclaim VAT incurred by you on business expenses.
Local Property Tax and Tax Clearance – As many contractors rely on Tax Clearance Certificates to obtain contracts, they should be aware that failure to pay the new Local Property Tax will affect their tax clearance status. It will also delay any possible RCT refunds at year end, and result in their Income Tax Return being deemed to be filed late, thereby incurring late filing surcharges.
Quick guide to RCT operation — All transactions with Revenue must be conducted electronically through ROS. Therefore all principals not using the services of a tax agent (accountant/ tax advisor) must be registered for ROS;
— The current electronic system commenced on 1 January 2012, at which point the previous system of RCT Certs and C2s became obsolete;
— There are now three rates of tax – 0%: This mainly applies to traders with a good tax record over the last three years. Foreign traders who can supply a letter from the foreign tax authorities confirming a good tax compliance record over a number of years may qualify for 0% rate; 20%: This applies to tax-registered traders without any major tax problems but without the good three year tax history; 35%: Mainly unregistered traders or subcontractors with compliance issues, outstanding returns, etc. Principal contractors should ensure that they identify all subcontractors and must register each contract online before commencement. We recommend obtaining PPS + copy of D/licence or passport + proof of address as standard.
— Additional information needed to register a subcontract online is subcontractor’s business name if different, country of residence and tax number in foreign country if foreign-registered, subcontractor’s phone number, start date and end date (or estimated end-date) of contract;
— Each separate contract must be notified;
— Contracts in place before 1 January 2012 must also be registered online;
— Subsequent contracts with the same subcontractor must be notified unless they are an ongoing contract;
• A contract is an ongoing contract if the terms do not change, the parties to the contract do not change, and if moving sites the subcontractor does not have to submit a new tender;
— If there have been no payments in the previous year a new contract notification must be filed;
— Before making a payment a principal contractor must notify Revenue online of the payment and will in turn receive a notification advising the rate of deduction to make;
— The principal must give the subcontractor a copy of the Revenue Deduction Authorisation received from ROS;
— If you are a subcontractor you should ensure that the principal gives you a copy of the deduction notification or similar document when paying you. This is to ensure that the tax deduction has been notified to Revenue;
— Before completing their periodic RCT Return a principal can view his deduction summary online, make any amendments necessary, and then file online. If there are no amendments to be made there is no need to file a return, it will be deemed to be filed;
— There is no annual return for RCT;
— All businesses can now view their current deduction rate and seek a review of that rate through the RCT section of their local tax office;
— Subcontractors will automatically have the withholding tax credited against tax liabilities outstanding, or as they arise. Revenue will issue a statement of account to you and repayment will only be made after the end of the year, and only after all returns are filed and tax paid or offset.
This article is for general advice and guidance only. You should always seek professional advice particular to your circumstances. For further comprehensive information rethe RCT visit revenue.ie, select Taxes and Duties, selectRelevant Contract Tax. ■