Relevant contracts tax (RCT)
RCT is a withholding tax regime which applies to certain payments mainly within the energy, telecoms, construction, forestry and meat processing sectors. The Deloitte RCT specialists can provide training, consultancy and compliance solutions to minimise risk and have significant experience and success in dispute resolution with the Revenue Authorities.
What is RCT?
Relevant Contracts Tax (RCT) is a withholding tax mechanism to ensure those involved in construction, forestry and meat processing operations are tax-compliant.
The legislation obliges a person (the principal contractor) to retain tax from the amount payable to contractors/sub-contractors engaged to carry out relevant operations in the absence of specific Revenue authorisations.
Finance Act 2011 introduced significant changes to the operation of the RCT system. The new online system is effective from 1 January 2012 and all RCT compliance is now conducted online using the Revenue’s Online Service (ROS).
The definition of a principal contractor has been extended to include a person who carries out the installation, alteration or repair of telecommunications systems.
Our dedicated team can offer assistance with RCT advisory services as well as compliance issues from both a principal and/or contractor perspective, including dealing with Revenue audits. The Deloitte RCT team is staffed by personnel drawn from Revenue and has a wealth of experience in dealing with RCT in various sectors, including property, construction, technology providers, power generation, PPPs, rail/transport networks and offshore activities.
We have experience of advising in all sectors of business for a range of clients from SMEs to multinationals, from start-ups to companies listing on a stock exchange, from the private sector to the public sector.
The Deloitte Relevant Contracts Tax (RCT) team provides a one stop shop for all your RCT needs as a principal and/or as a sub-contractor. We can provide our RCT services separately or as part of a suite of tax, audit, consulting and financial services.
We focus on adding value to our clients in a practical and cost-efficient manner. Our RCT services include the following:
• RCT consultancy, including its impact on all aspects of trade and day-to-day business
• Providing training and compliance manuals on the practical operation of RCT tailored to suit your business needs
• Advising on the RCT implications of property transactions
• Conducting RCT reviews to identify risk areas and recommending strategies to mitigate risk and potential RCT costs
• Preparing and filing RCT unprompted/prompted voluntary disclosures with Revenue
• Assisting with Revenue audits, including carrying out a pre-audit review, and interacting and negotiating with Revenue
• Mitigating the penalties and interest regarding an RCT liability following a Revenue audit
Conducting RCT reconciliations for VAT & RCT (Revenue programme)
• Assistance with RCT compliance; input contract notifications, payment notifications and review deductions summaries
• Application to Revenue for the zero per cent rate of RCT for subcontractors
• Obtaining RCT refunds for both resident/non-resident individuals and companies
• Conducting due diligence reports
eRCT Compliance System 2012
The Relevant contracts tax compliance system has undergone a complete transformation. The traditional collection of paper based forms, completion of monthly and annual returns, and even the familiar ‘C2 card’ or ‘C2 Authorisation’ has now been replaced by the new online ‘eRCT’ compliance system with effect from 1 January 2012.
The definition of a principal contractor has been extended to include those who carry out the installation, alteration or repair of telecommunications systems. ‘Relevant operations’, i.e. the type of activities to which RCT applies has also been broadened to include the repair or alteration of systems of telecommunications, previously only the installation of such systems was within the scope of RCT.
From 1 January 2012 all RCT compliance, filing and payments, is conducted online using the Revenue Online System (ROS). All principal contractors should ensure they are registered to use the ROS facility if not already registered. Subcontractors should also register for ROS in order to access details regarding their RCT transactions.
RCT deduction rates
The new RCT system has three deduction rates, the rate applicable to each subcontractor is determined by their own tax compliance history and status. Subcontractors who are fully compliant and satisfy Revenue of certain criteria have the benefit of a ‘Zero’ rate of RCT being applied, i.e. they may receive payments without an RCT deduction, provided they keep their tax affairs up to date. The new standard rate for RCT is 20% and is applicable to all registered subcontractors with a good compliance record. The 35% rate, will apply to all other subcontractors, in particular, subcontractors who are either not registered with Revenue for RCT or those who are registered, but may have tax compliance issues to be addressed.
eRCT new 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. Specific details regarding the contractor engaged and the contract itself is required. The Principal will receive a unique contract reference number and an indication of the applicable deduction rate for the contractor. A principal will need to obtain documentary “evidence of identity” from subcontractors for any new contracts.
A principal is not able to obtain the required Deduction Authorisation necessary to make a payment to a subcontractor without first having completed the Contract Notification stage in respect of the particular contract to which the payment relates.
A contract notification acknowledgement issues to the principal’s ROS inbox confirming the details received, this also indicates the RCT rate applicable to the contractor; however, this is for information purposes only. Details of each contract with a subcontractor has to be notified separately and is allocated a unique reference number, however, as a transitional measure for 2012 only one Contract Notification per subcontractor engaged is required. The subcontractor engaged will also receive details of contracts input.
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. The eRCT system does not have a facility to allow amendments to a Payment Notification, however, if details input are incorrect, the notification may be cancelled and a new Payment Notification can be input. New RCT regulations were introduced and provide where a Payment Notification has been input and the payment is not going to be made, the principal should cancel the Payment Notification.
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. The principal should provide a copy, or, at minimum, the details contained in the deduction authorisation to the subcontractor.
Where a principal makes a payment without first obtaining a deduction authorisation the principal is liable to RCT at 35% regardless to the deduction status of the subcontractor to whom the payments has 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.
The new eRCT system prepares a pre - populated period end return known as a deduction summary, it is based on the deduction authorisations which issued during the period. The deduction summary is deemed to be the return made by a principal and the amount of tax shown is regarded as the tax liability unless the principal amends and submits corrected details by the due date. The due date for confirming or amending the deduction summary is the 23rd day of the month following the period end.
A deduction summary displays ‘line items’ which details each deduction authorisation issued in respect of payments to subcontractors during the period. If the information is correct the deduction summary may be accepted or the details can be amended before the return due date. Where a principal amends any details on a deduction summary after the due date for that period an automatic surcharge of €100 will apply in addition to the tax due per the amended return.
No interim RCT refunds under new system
The reduction in the standard deduction rate to 20% is welcomed, however, 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.
Both resident and non-resident contractors may seek refunds/offsets of RCT withheld within the statutory four year time limit.
Addressing your RCT and VAT training needs
We feel that giving people the skills they need to address RCT/VAT issues and embedding processes will not only reduce the risk of future error, but also reduce the reliance on outside assistance in future years.
First and foremost, we can help you identify your obligations in this regard. We can deliver training sessions on the practical operation of RCT, including its interaction with VAT. We have significant experience in providing RCT/VAT training sessions and each session would be specifically tailored to your company’s RCT/VAT obligations and the specific requirements and scope of such services would be discussed in advance of any planned session.
Our VAT/RCT team are also well versed in conducting VAT and RCT reviews to help you identify potential areas of tax exposure.”
Who should operate RCT?
Relevant contracts tax - principal contrators
RCT should be operated by businesses defined as principal contrators. 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 are deemed to be principal contractors under current legislation. It also includes all gas, water, electric/hydraulic power (eg wind farms), dock, canal and railway activities.
From 31 March 2012, companies and individuals who carry out work on the installation, alteration or repair of telecommunications systems are now specifically included in the definition of a Principal.
A person or company is also deemed to be a principal contractor where they sub-contract all or part of a relevant contract under which they are a sub-contractor for RCT purposes.
Where a principal receives certain services, RCT should be operated on payments made to the service provider.
The range of services included in the scope of RCT is very broad and can bring some service providers into the realm of RCT unexpectedly, for example telecommunication hardware suppliers, hauliers and offshore exploration/exploitation support services.
Relevant Contracts Tax (“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 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.
The definition of “relevant operations” is very broad and include the following:
• Design and build contracts
• Contracts providing installation services, e.g. power supply, wind farms, heat, light, air-con, telecom systems
• Repair, demolition, site preparation and clearance services (including skip hire)
• Haulage services, crane and scaffolding hire
• Agency services related to the provision of labour
• Operations preparatory, integral to, or rendering complete the exploration, extraction or exploitation of natural resources (minerals, oil, gas)
• Processing, cutting and preserving wood
• Slaughter, processing, packaging, preservation, cold storage, haulage of cattle, sheep, pigs or fowl
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 RCT. If you are considering undertaking work in the construction, meat and forestry sectors in Ireland, it is advisable that RCT is considered from the outset.
There are three rates for RCT; the 35% rate applies to subcontractors who are not yet registered with Revenue and for subcontractors who have outstanding compliance issues. The 20% deduction rate applies to subcontractors who are registered with Revenue and have an established compliance record. There is also a zero per cent rate which applies to subcontractors who satisfy certain Revenue requirements.
The Deloitte RCT team 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. The team can also assist with completing the RCT registration and obtaining the best RCT deduction rate.
VAT and RCT Interaction in Construction Operations
Ted Holohan and Alan Kilmartin interaction analyse the complex between VAT and RCT in relation to construction operations, where difficulties of interpretation are exposing businesses to significant compliance risks.
This article first appeared in Irish Tax Review, Vol. 28 No. 3 & is Copyright of Irish Tax Institute.
Revenue RCT Compliance Interventions
In an article written for the Irish Tax Institute, Alan Kilmartin discusses Revenue Audit and intervention methods, the information available to Revenue, the current focus on the construction sector and issues that advisors and taxpayers should bear in mind.
“This article first appeared in Irish Tax Review, Vol. 28 No. 4 (2015) © Irish Tax Institute”.