Revenue is introducing a mandatory electronic RCT system on 1st January 2012 for ALL principal contractors in the RCT system. There will be no paper RCT forms in future.
From 1st January 2012, all contracts between a principal contractor and Revenue must be through an online process. You will be required to notify Revenue of details of all relevant contracts online. You will also be required to notify Revenue of each payment to a subcontractor (in advance of making the payment) to obtain confirmation on the amount of RCT, if any, to deduct from the payment. There will be three RCT rates: 0%, 20% and 35%.
What should you do to prepare for these changes?
You must be registered for the Revenue Online Service (ROS). Visit the Revenue website to register now. If you wish for our office to complete your RCT requirements for you, please contact Marie Kelly/Ann Marie Power immediately, to enable us to register you on our ROS system.
The key changes
- The standard RCT rate is being reduced from 35% to 20%.
- Revenue will automatically put credit for any tax deduction onto the subcontractor’s tax record.
- Interim repayments will be replaced by an offset system which will be linked to the tax liabilities of subcontractors (i.e. no repayments of RCT will be made during the year.)
- The subcontractors will receive details from Revenue of contracts notified by principal contractors on the new system. The subcontractor will also be notified by Revenue when his/her rate changes.
- While principal contractors are obliged to engage with Revenue electronically in the new system, subcontractors, who are not also principal contractors, can interact with Revenue as normal. However, if subcontractors are registered for the Revenue Online Service (ROS), they will be able to see their own records through ROS and benefit from online 24/7 self service channels.
Entering into a contract with a principal
The principal contractor will have to notify each new contract in the new system before any payment can be made. Subcontractors must give sufficient information, in particular, their name and tax reference number, to the principal to allow the principal notify the contract and identify the subcontractor for Revenue purposes. Subcontractors may also be asked to provide proof of identify, for example, a copy of their passport, driver’s licence or details of their tax registration, etc.
Once a principal notifies a contract, the subcontractor will be given details of the contract by Revenue and will be provided with an indication of his/her RCT rate. If any of the details are incorrect, the subcontractor should first raise the matter with the principal who may be able to amend the details. Otherwise, the subcontractor should contact his/her local Revenue District.
RCT rates in the new system
In the new system, there will be three rates: 0%, 20%, 35%. The rate that will apply will be based on the subcontractor’s compliance record. Revenue will advise subcontractors of their RCT rate prior to the introduction of the new system. To ensure smooth transition to the new RCT system, subcontractors’ rate will be frozen for the first three months in 2012 (from 1/1/2012 to 31/3/2012).
Subcontractors who currently hold a valid C2 will qualify for the 0% rate when the new system is introduced on 1st January 2012, provided they keep their tax affairs up to date. The C2 card will no longer be issued to subcontractors qualifying for the 0% rate. All other subcontractors will be eligible for the standard 20% rate, or in very limited circumstances, the 35% rate.
The 35% rate will be applied to subcontractors who are not known to Revenue. It is important, therefore that the information given to the principal to notify the contract is complete and accurate. Subcontractors who have been advised that they are not known to Revenue and who will have the 35%rate applied, should contact their local Revenue District urgently. The 35% rate will also be applied to subcontractors who have serious compliance issues to address. As Revenue will have been in contact with these subcontractors for some time they will already be aware of the issues that need to be addressed.
Subcontractors who keep their tax affairs up to date will be moved to a 0% rate automatically. Zero rate subcontractors who fail to keep their tax affairs up to date will be moved to the standard rate (20%) automatically (or in exceptional circumstances, the 35% rate). Revenue will notify subcontractors of any charge to their rates.
Receiving payments from principals
In the new system, a principal contractor must notify Revenue of the gross payment, PRIOR to making the payment to the subcontractor. Revenue will respond by authorising the principal to deduct tax, if any, from the payment (Deduction Authorisation). As this process is electronic, there will be no delay on processing the payment notification and the principal should receive the deduction Authorisation from Revenue immediately. The principal must give the subcontractor a copy of the Deduction Authorisation with that payment (or, if the subcontractor is in agreement, provide details of the Deduction Authorisation in respect of the payment to be made to the subcontractor).
Obtaining credit for tax deducted from payments
When a principal notifies Revenue of a relevant payment, Revenue will automatically credit the RCT deducted to the subcontractor’s tax record. Information in relation to the availability of RCT credits for offset against tax liabilities will be made available (on the Revenue website) in advance of the 1st January 2012 commencement date.
In the absence of the C2, new arrangements will be introduced for subcontractors engaged by Government bodies and local authorities. Details recently posted on the revenue website are as follows:
In the case of all public sector contracts of a value of €10,000 (including vat) or more, within any 12 month period, the contractor will be required to:
1) Produce a current tax clearance certificate
2) Demonstrate a satisfactory level of subcontractor tax compliance.
It will be a condition for the award of the contract that all subcontractors employed on the project must produce a tax reference number where payments exceed €650.
Subcontractors who are in partnership
It will be the responsibility of the precedent acting partner to advise Revenue of the proportion of the RCT credit to which each partner is entitled. In order to ensure that credit has been transferred to each partner’s individual account each partner must be registered for RCT.
Completing the Periodic Return and making payment of RCT deducted
A Deduction Summary containing details of all relevant payments about which you have notified Revenue will be issued to you through ROS at the end of each period. On receipt of the Deduction Summary you should:
- Check to ensure that all payments made to subcontractors have been notified to Revenue.
- If the Deduction Summary accurately reflects all payments made, then you should arrange for payment of the RCT deducted by the due date. No further action is required. This is deemed to be the return.
- If the Deduction Summary requires amendment you should amend it online, submit it and arrange for payment of the tax due on or before the due date.
Please note you will not be able to amend these details once the return has been filed or deemed filed (if not filed by the due date). If any line items (payment details) require amendment you should amend these line items and file the return on or before the due date for the return. Where amendments need to be made after the return has been filed or deemed filed (if not filed by the due date) you should contact your local Revenue district. A surcharge will also apply to any amendments made after the due date for the return, and you may be liable for interest and penalties.
Failure to Notify Revenue of Contractors & Payments
Please note failure to notify Revenue of contracts and payments in advance, can incur fines of up to €500 and 35% tax due on the payment made to the subcontractor.