Relevant contracts tax - time to act. Ensure you are compliant with Relevant Contracts Tax (RCT)
Under Irish tax legislation a principal contractor is required to operate RCT on a payment made to a subcontractor in respect of construction, forestry or meat processing operations. The rate of RCT to be applied to a particular payment is the rate determined by Revenue upon receipt of notification from the principal contractor that a payment is to be made.
The Finance Act 2014 has provided for a revised penalty regime where principal contractors fail to operate RCT correctly on payments made to subcontractors. The penalty will now be proportionate to the amount of the RCT that should have been deducted. The principal contractor will be liable for a penalty for each instance of non-operation of RCT after 1 January 2015 and this will be based on the status of the subcontractor. In summary:
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Where the subcontractor is registered with Revenue and is fully tax compliant and therefore subject to the zero rate of RCT deduction, the principal contractor will be liable to a civil penalty of 3% of the relevant payment.
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Where the subcontractor is registered with Revenue and is substantially tax compliant and therefore liable to a 20% rate of RCT deduction, the principal contractor will be liable to a civil penalty of 10% of the relevant payment.
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Where the subcontractor is registered with Revenue and is not compliant and thus liable to a 35% rate of RCT deduction, the principal contractor will be liable to a civil penalty of 20% of the relevant payment.
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Where the subcontractor to whom the payment was made is not known to Revenue, the principal contractor will be liable to a civil penalty of 35% of the relevant payment.
In the above instances of non-compliance the principal contractor will be required to submit an unreported payment notification to Revenue.
For a consultation or advice on any tax matters including personal tax, corporate tax, VAT and RCT please contact our tax team directly at +353 1 614 2500.
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Smith & Williamson Freaney Limited
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Article Published: 27/01/2015