RCT is a withholding tax mechanism which applies to certain payments mainly within construction, forestry and meat processing operations.
What is 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 within the state.
All RCT compliance is now conducted online using the Revenue’s Online Service (ROS).
RCT deduction rates
The RCT system has three deduction rates:
- Zero’ rate for Subcontractors who are fully compliant
- 20% Standard rate for all registered subcontractors with a good compliance record.
- 35% rate, will apply to all other subcontractors, mainly who are either not registered with Revenue for RCT or those who are registered, but may have tax compliance issues.
Who should operate RCT?
RCT should be operated by businesses defined as principal contractors. A principal contractor may include property developers, building companies and all associated building trades, as well as individuals who are connected with these businesses.
All government bodies, local authorities, public utilities, boards and bodies established under statute (including school BOM’s) are deemed to be principal contractors under current legislation.
RCT 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 are obliged to operate RCT. Also non-resident subcontractors who carry out “relevant operations” in the construction, meat or forestry sectors in Ireland may be subject to this withholding tax.
eRCT Compliance Procedures
The first step in the eRCT system is to input a “contract notification”. A Principal must notify Revenue online each and every time a new relevant contract is entered into with a contractor.
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.
When a payment notification has been made a deduction authorisation will issue automatically to the Principals ROS inbox. The deduction authorisation will show the applicable RCT deduction rate and the amount of RCT to be deducted.
Where a principal makes a payment without first obtaining a deduction authorisation the principal is liable to RCT at 35% regardless of the deduction status of the subcontractor to whom the payments have been made. In addition to the RCT amount, a penalty up to €5,000, may also be payable in certain circumstances. Revenue will verify the correct tax deduction rate applicable to the subcontractor and an adjustment to the liability for the period may be required. A subcontractor will receive an immediate credit on their tax record for the tax amount which may be set against other taxes due.
No interim RCT refunds under new system
Subcontractors are no longer able to apply for interim refunds of RCT deducted during the tax year. Instead, any tax deducted is credited against other tax liabilities the subcontractor may have. Any excess may only be refunded after the income/corporate tax return for the chargeable period has been filed and paid.
At Roberts Nathan, we can advise on whether RCT applies to you along with advising and assisting both Principals and subcontractors with all aspects of RCT including compliance and processes required. We can also assist with completing the RCT registration and obtaining the best RCT deduction rate. To get in contact with a member of our team, click here.