Revenue E-Brief Issue
12/2011, 25th February 2011
Changes to the operation of Relevant Contracts Tax (RCT)
On Budget day, 7 December 2010, the Minister for Finance announced that significant reforms would be made to the Relevant Contracts Tax (RCT) scheme to enhance its effectiveness, reduce opportunities for fraud and help decrease the administrative burden for businesses and Revenue. The Finance Act (enacted on 6 February 2011) gives a legislative base to the reform of the RCT scheme. The provisions are contained in Section 20 of the Act. In essence, the Finance Act amends the Taxes Consolidation Act in Chapter 2 of Part 18 by inserting twenty-two new sections after Section 530. These sections comprise a new scheme of RCT, which will replace the current scheme on a date yet to be decided.
The key elements of the new scheme as outlined in the Act are:
- Replacement of the current RCT rates of 0% and 35% with a three-rate withholding scheme:
- zero rate which will apply on the same basis as currently applies to a C2 holder - criteria include compliance with tax obligations for previous three years,
- standard, i.e. 20%, rate for subcontractors registered for tax with a record of substantial compliance,
- 35% rate which will be a default rate where both zero and 20% are not appropriate.
- Abolition of the monthly RCTDC repayment system and replacement with an offset system and annual repayment.
- Strengthening of the reporting system for RCT principals 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.
The following is an overview of how the new scheme is expected to work. It should be remembered that all contacts between the principal and Revenue will be through an on-line process.
- When a principal enters into a relevant contract with a subcontractor, s/he will be obliged to provide Revenue with details of the subcontractor and contract, on-line, including confirmation that the contract being entered into is not a contract of employment. Revenue will then acknowledge the contact and will advise the principal and subcontractor of the rate to be applied, if available. (Section 530B 'Notification of contract by principal')
- Prior to making a payment under the contract, the principal must notify Revenue (by electronic means) of their intention to make the payment and state the gross amount to be paid. (Section 530C 'Notification of relevant payment by principal')
- Revenue will issue a deduction authorisation setting out the rate of tax and the amount of tax to be deducted from the payment. The principal must pay the subcontractor in accordance with the deduction authorisation and provide a copy of the authorisation to the subcontractor. (Sections 530D 'Deduction authorisation' and 530F 'Obligation on principals to deduct tax')
- Revenue will automatically put credit for any tax deducted onto the subcontractor’s tax record. That credit will be available for offset as it arises or for repayment annually. (Section 530P 'Credit for deducted tax')
- If the subcontractor is registered for ROS, they will be able to access their own records through ROS.
- Revenue will have all details of the payments notified to them by principals. Depending on the filing frequency of the principal, a deduction summary will be issued to the principal, either monthly or quarterly, listing all of the payments Revenue has been made aware of. If the summary is correct, the principal needs only to arrange payment on or before the due date for the return. The return will be deemed to have been made on that date. If the summary requires amendment the principal can amend it on-line and arrange for payment on or before the due date. (Section 530K 'Return by principal')
- Payment should be made on-line by the due date. As all principals will be electronic filers, the due date is the extended date – the 23rd day after the end of the period covered by the return. The compliant principal will then have fulfilled their obligations. (Section 530L 'Payment of tax by principal')
- 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. (Section 530M 'Late returns and amendments')
- Revenue can assess the liability of a principal, normally following an investigation or audit. A notice of assessment will issue in such cases. (Section 530N 'Assessment by Revenue officer')
Revenue is currently working on the design of the new scheme, which will have an impact on the sectors where RCT applies i.e. Construction, Meat Processing and Forestry. To underpin the implementation of these major changes, Revenue is engaging with key stakeholders including the Tax Advisory Liaison Committee Sub Group on RCT set up for this purpose.
Information on the new scheme can also be accessed through the following links:
Finance Bill (Section 20) 2011