Updated: May 27, 2020
What is RCT? Read our in depth guide to RCT and understand what it is and how to stay compliant from both a subcontractor and principal contractors point of view.
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What we cover in this guide
1. What is RCT?
2. RCT Requirements for a Principal Contractor
3. Penalties for Non-Compliance
4. RCT Requirements for a Subcontractor
5. How we can help
What Is RCT?
RCT is a form of withholding tax which requires a Principal Contractor to deduct a certain amount from every payment made to a subcontractor and file a relevant return with Revenue for each payment made. RCT only applies to individuals working within the construction, meat and forestry industries.
RCT Requirements: Principal Contractor
Once an individual engages another individual on a contract basis within a relevant industry (construction, meat processing & forestry) they are considered a principal contractor. As a result, they must notify the Revenue Commissioners within 21 days of entering into their first relevant contract.
Non-resident contractors are obliged to follow RCT rules and must also consider permanent establishment rules. Other registrations are most likely required in addition to RCT (VAT, IT, CT etc).
It is also vital to examine whether a contractor is indeed a contractor and not an employee. This can be judgmental and there is a body of case law which defines the area. We suggest a potential principal contractor reviews the Code of practice for Determining Employment or Self-Employment Status of Individuals here.
RCT is an administratively intensive tax and requires considerable attention. In order to ensure compliance, the following must be complete.
1. Contract Notification: When a Principal Contractor enters into a contract with a subcontractor, they are required to notify Revenue of this contract with appropriate details;
2. Payment Notification: A principal contractor must notify Revenue of each payment made to a subcontractor prior to payment;
3. Deduction Authorisation: Revenue will issue the principal contractor will correspondence outlining the amount of tax to be withheld. This will be 0%, 20% or 35%. Once received a payment may be made to a subcontractor;
4. Deduction Notification: When a principal makes a payment to a subcontractor from which tax is deducted the principal must provide to the subcontractor a copy of the deduction authorisation;
5. Invoicing: An invoice is required from the subcontractor that reflects the deduction; and
6. Review & Payment: A review of all deductions made at end of period along with a payment of deducted tax to Revenue.
The above is completed on Revenue Online Service (ROS) and must be complete prior to a payment. As explained below, penalties for non-compliance are severe.
RCT returns can be due on a monthly, quarterly or annual basis. Whichever period the return relates to, the return is due by the 23rd day of the month after the end of that period. Where payments are not made, interest will be levied at 0.0274% per day (approximately 10% per annum).
Records to be kept
A principal is required to maintain records in relation to RCT. Legally, a principal must maintain;
- Information & notifications of each relevant contract;
- Relevant Payments and tax deducted from such payments;
- Registration details associated with registration;
- Details as set out in each RCT return;
- Tax due and payable; and
- Invoices (Statement of Work) prior to a payment notification.
Penalties For Non-Compliance
The penalties from non-compliance are punitive and are imposed even if there is no loss for Revenue. These penalties are set out as follows;
As an example, a principal paid a sub-contractor €10,000. This sub-contractor is deemed to be on a 35% deduction rate. The principal failed to comply with RCT rules and notified Revenue post payment. The principal is liable to a €3,500 fine from Revenue.
RCT Requirements: Subcontractor
A Subcontractor is required to register with Revenue and will be provided with a deduction rate based on historical tax compliance. The principal will apply this deduction to any payment made to a subcontractor and a rate of 0%, 20% or 35% will be set by Revenue. For example, a principal contractor owes a subcontractor €1,000. The principal contractor will actually pay the subcontractor €800 and pay the €200 to Revenue. The sub-contractor can claim this from Revenue or use it to offset taxes due.
A sub-contractor is required to keep and maintain a record of all payments received and the record must include for each payment, the date of the payment, the amount of the payment, the amount of RCT if any deducted and the name of the person who made the payment.
If an individual is deemed a sub-contractor, they will most likely fall into the self-assessment system. As a subcontractor, several steps need to take place in order to be fully tax compliant;
· Register relevant taxes with Revenue (Income Tax at a minimum);
· Complete a form-11 on an annual basis
· Pay Income Tax & Preliminary Tax
We can complete the above and ensure RCT compliance on an annual basis for €249. Due to RCT deductions, it is common that no tax becomes payable and a refund from Revenue may be due.
MyTax manages the entire end-to-end RCT process for principal contractors ensuring full compliance with Revenue requirements. Through our specifically designed RCT management system, we complete the following;
· Registration of principal contractor for RCT, if required;
· Creation and filing of all RCT contracts as required;
· Prior of payment to sub-contractors, principal provides MyTax (WhatsApp, email, text, phone call) with relevant detail of payment to contractors;
· MyTax will file all payment proposals with Revenue and notify principal of any deductions required;
· MyTax will issue a notification of deduction to each sub-contractor via email;
· MyTax will track and ensure sub-contractors issue invoices as required;
· MyTax will review and file RCT submission at end of period for principal;
· We will ensure compliance with record management requirements; and
· We provide period end summary to principals of all payments and deduction.
Through our system we protect principal contractors from potential Revenue fines and eliminate significantly onerous administration. Our service starts from as little as €100 per month, depending on frequency of payments and number of sub-contractors.