Update to Revenue’s Guidance Note - Relevant Contracts Tax for Subcontractors
Revenue updated its guidance note on Relevant Contracts Tax for Subcontractors on 3 July 2023. The update provides additional information on the incorrect operation of RCT.
Relevant Contracts Tax (“RCT”) is a withholding tax that applies to certain payments by principal contractors to subcontractors in the construction, forestry and meat-processing industries. The rates of tax are 0%, 20% and 35%.
The principal should notify Revenue immediately after entering into a relevant contract with a subcontractor. Before submitting the contract notification, the principal should obtain and retail documentary evidence proving the identity of the subcontractor.
Before making a payment to a subcontractor, a principal must submit a payment notification to Revenue. In response, Revenue will issue a deduction authorisation to the principal, specifying the applicable RCT rate and the amount of RCT to be deducted.
Revenue have clarified that if a principal does not submit a payment notification or does not apply the deduction authorisation correctly to the payment any deduction that the principal makes from the payment to the subcontractor is not RCT.
Failure by a principal to comply with the RCT procedures resulting in an underpayment to a subcontractor (where the principal claims the underpayment relates to RCT deducted) should result in penalties applying as well as the requirement for the principal to submit an unreported payment notification. In addition, the subcontractor has the right to pursue the principal regarding any adverse consequences as a result of the underpayment.
It is important to note that any subsequent payment made by the principal to complete a partially unpaid invoice falls under the scope of RCT and a payment notification should be submitted by the principal before making this payment.
Given that the penalty imposed by Revenue in respect of non-compliance with RCT rules is applied on the gross payment (and not on the tax itself), the implications for non-compliance can be punitive.