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Legal Disclaimer>


 
Changes to the Operation of RCT
by Una Beecher

The Finance Act 2011 has introduced changes to the operation of RCT and the key elements of same are as follows:

Replacement of the current RCT rates of 0% and 35% with a three rate scheme:

  • 0% rate which will apply on the same basis as currently applies to a C2 holder. Criteria include compliance with tax obligations for previous 3 years.
  • 20% rate for subcontractors registered for tax with a record of substantial compliance.
  • 35% rate which will be a default rate where both 0% and 20% are not appropriate.

Abolition of the monthly RCTDC repayment system. This will be replaced with an offset system and annual repayment.

Strengthening of the reporting system for RCT principal contractors in order to enhance compliance and reduce the opportunities for fraud.

The mandatory use of electronic means for the transfer of information, data, payments and returns.

 

Summary of Scheme

Remember that all contact going forward between the Revenue Commissioners and a principal contractor will be through an online process.

  • When a principal contractor enters into a relevant contract with a subcontractor he must provide Revenue with details of the subcontractor and the contract online. This must include confirmation that the contract being entered into is not a contract of employment. Revenue will then acknowledge the contract and will advise the principal contractor of the rate of RCT (0%, 20% or 35%) to be applied.
  • Before making a payment under the contract, the principal contractor must notify Revenue (by electronic means) of his intention to make the payment and state the gross amount to be paid.
  • Revenue will then issue a deduction authorisation setting out the rate of tax and the amount of tax to be deducted from the payment. The principal contractor must pay the subcontractor in accordance with the deduction authorisation and provide a copy of the authorisation to the subcontractor.
  • Revenue will automatically put credit for any tax deducted on to the subcontractor’s tax record. This credit will be available for offset against the subcontractors other tax liabilities as they arise (VAT, income tax, etc) or for repayment annually.
  • If the subcontractor is registered for ROS he will be able to access his own record on ROS.
  • Revenue will have details of the payments notified to them by the principal contractor. Depending on the filing frequency of the principal contractor, a deduction summary will be issued to the principal contractor either monthly or quarterly listing all the payments which Revenue have been made aware of. If the summary is correct the principal contractor needs only to arrange payment on or before the due date of the return. The return will be deemed to have been made on that date. If the summary requires amendment the principal contractor can amend it online and arrange for payment on or before the due date.
  • Payment should be made online by the due date. As all principal contractors will be electronic filers, the due date is extended to the 23rd day of the month after the end of the period covered by the return. The compliant principal contractor will then have fulfilled his obligations.
  • If the deduction summary is amended after the due date, the return will be late and a surcharge will apply. Revenue will issue a notice of the tax and any surcharge due.
  • Revenue can assess the liability of a principal contractor normally following an investigation or audit. A notice of assessment will issue in such cases.

We understand from discussions with Revenue that they are currently working on the design of the new RCT scheme and will give ample notice to all relevant parties of when it will be implemented.

If you have any queries on the new RCT system please email me on unab@parfreymurphy.ie or call me on 021 4310266.

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