Changes to the Operation of RCT
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
- 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
- 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 firstname.lastname@example.org or call me on 021 4310266.