RCT explained for subcontractors in Ireland

01What RCT is

Relevant Contracts Tax is a withholding tax on certain payments from principal contractors to subcontractors. It covers the construction, forestry and meat-processing industries. In construction, Revenue’s list includes building, altering, repairing, extending and demolishing buildings, installing or repairing heating, lighting, power, water, drainage and sanitation systems, and site work such as clearing, excavating, foundations and scaffolding.

The idea is simple. When the main contractor pays you, they may hold back part of the payment and send it to Revenue for you. That money then counts towards your own tax.

You are a subcontractor for RCT when you enter into a relevant contract with a principal contractor. So the first question is always: is the person paying you a principal contractor?

02Who counts as a principal contractor

Revenue’s manual sets out who has to operate RCT. The main groups are:

• Contractors who pass work on. Someone who contracts to do plumbing or electrical work on a building and then subcontracts it to you is a principal for that work.
• Builders and developers. A business that includes erecting buildings or developing land, or making materials for construction, such as concrete suppliers.
• Public bodies. Local authorities, Government Ministers, and boards or bodies set up by statute and funded mainly by the State.
• Utilities and telecoms. Gas, water, electricity, dock, canal and railway undertakings, and anyone installing or repairing telecommunications systems in buildings.

A homeowner paying you to work on their own house isn’t on that list, so jobs for homeowners are not RCT jobs. The manual also has special rules for people connected to construction companies, and for developers building to let. If you’re not sure whether a customer is a principal, ask them or Revenue before the job starts.

03The three rates

There are three rates: zero, 20% and 35%. You don’t pick the rate, and neither does the main contractor. Revenue sets it from your tax record:

These are the descriptions on Revenue’s page for subcontractors. A few points from Revenue’s manual are worth knowing:

• New to tax? A new registration automatically gets 20%, because there is no three-year record yet. It can be moved to zero if Revenue agrees the three years should be set aside.
• Wrong details mean 35%. If the main contractor doesn’t have a valid tax reference number and name for you, the system sets 35% until you sort it out with Revenue.
• Rates change. Revenue reviews rates in bulk from time to time. When your rate changes, you and every main contractor with an active contract with you get a letter.
• You can ask for a review or appeal. If you use ROS you can view your rate and request a review online; if not, Revenue can do it for you. A formal appeal goes to the Tax Appeals Commission within 30 days of the decision.

04How a job runs under RCT

1. The contract is notified. When a main contractor takes you on, they tell Revenue about the contract online. You give them the name Revenue has on record for you and your tax reference number, plus proof of identity such as a passport, driving licence or tax registration details. Revenue then sends you a contract confirmation letter, which also confirms your rate. If the details on it are wrong, ask the main contractor to fix them.

2. Each payment is notified. Immediately before paying you, the main contractor sends Revenue a payment notification: who you are, which contract, and the gross amount.

3. Revenue replies with a deduction authorisation. It comes back to the main contractor straight away and says the rate and the amount of tax to hold back, which may be zero.

4. You’re paid, less the tax. The main contractor pays you the net amount and sends the tax to Revenue. If they skip the payment notification, anything they hold back is not RCT, and chasing them for it is up to you.

05What you get to see

When tax is held back, the main contractor must give you a copy of the deduction authorisation, or its details:

• the main contractor’s name and tax reference number
• your name and tax reference number
• the gross payment and the tax held back
• the rate used and the date of payment
• the unique reference number Revenue put on the authorisation

You don’t have to use ROS just because you’re a subcontractor (unless you must file online anyway), but if you do, you can see every transaction on your RCT account and your letters from Revenue there. Revenue also tells you when a main contractor cancels a payment notification or changes a payment line.

Keep your own records. For every payment, Revenue expects you to keep the date, the amount, any RCT held back and the main contractor’s name, along with each deduction authorisation or its details.

06Getting the tax back

The tax held back isn’t lost. Revenue automatically credits your tax record with it, and sets it against what you owe once you file the matching return: your Form 11 or CT1 for income or corporation tax, your VAT return, or your payroll return. Revenue sends a statement of account to your ROS inbox when it does.

What it won’t do is refund you during the year. Repayments can only be made after the end of the tax year, once your return is filed and your other taxes are paid up. If you’re on 20% or 35%, that money is tied up for months, which is one more reason to keep your tax record up to date.

07VAT on RCT jobs

RCT jobs use the VAT reverse charge. You don’t charge VAT to the main contractor. If you’re VAT registered, your invoice shows everything a VAT invoice normally shows except the VAT rate and amount, includes your VAT number, and says “VAT on this supply to be accounted for by the principal contractor”. The main contractor accounts for the VAT instead, and RCT is worked out on the amount without VAT.

Jobs you do directly for homeowners are not under the reverse charge: you charge VAT on those as normal, if you’re registered.

08A worked example

A made-up plasterer does a €10,000 job for a main contractor. Revenue has the plasterer on 20%.

The €2,000.00 shows on the plasterer’s RCT record. At the end of the year it’s set against their income tax. If their tax for the year comes to less than everything held back, they can claim the difference after filing their return.

09Where QuotePaid fits

QuotePaid is built for quoting and invoicing customers directly. It doesn’t make reverse-charge invoices or keep track of RCT held back, so for work under a main contractor, use the main contractor’s process and keep the records above. For your jobs for homeowners and other customers, QuotePaid handles the quote, the VAT and the invoice.