If your business relies on subcontractors, it is important to understand whether Relevant Contracts Tax (RCT) applies. RCT is a withholding tax on various activities in the construction, forestry and meat processing industries. You can find a full list of relevant activities on the Revenue website. Note that RCT also applies to relevant activities carried out by non-resident subcontractors.
What is a withholding tax?
A withholding tax is a tax that is deducted by the recipient of a service. So, if you are using subcontractors for activities where RCT applies, you must deduct RCT from the payments you make to these subcontractors.
Subcontractor vs Employee
It is important to understand the difference between an employee and a subcontractor. If you are unsure, you can find guidance on how to check this in Revenue’s Code of Practice for Determining Employment Status.
Notifying Revenue about RCT contracts
Under RCT rules, you must notify Revenue about all relevant contracts and subcontractor payment details. You do this via contract and payment notifications which are filed via the Revenue Online Service (ROS). You must notify Revenue immediately after entering into a contract with a subcontractor and file your payment notifications before you pay your subcontractors. Revenue can apply a surcharge if your RCT filings are late.
Summary of RCT deductions
Shortly after the end of each return period, Revenue will compile a summary of your RCT deductions. It’s advisable to check this carefully each time to make sure that it is correct. Revenue can penalise you for any incorrect or unreported payments.
Notifying subcontractors
You must also notify your subcontractors about the RCT that you are withholding from their payments.
RCT rates
There are three different RCT rates—0%, 20% and 35%. The rate that applies, depends on each subcontractor’s compliance record with Revenue.
Reverse Charge VAT
While VAT is usually charged by the person supplying goods and services, under RCT in the construction sector, the person receiving the goods or services is responsible for collecting the VAT and paying it over to Revenue. So, if you are a Principal Contractor, you will need to apply Reverse Charge VAT (RCV) to the invoices you receive from your subcontractors.
Need help with RCT?
If you are a GroForth client, our team can help you with your RCT queries and provide timely RCT filing reminders. If you are not one of our clients, you can find more information on the Revenue website.
