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Changes to the operation of Relevant Contracts Tax (RCT)

1. New RCT system to be introduced in 2012

Work is well advanced on developing a new system, which is expected to be introduced on 1st January 2012. It will be subject to a commencement order to be signed by the Minister for Finance.

From 1st January 2012, all relevant contracts, including those that are ongoing at the end of December 2011, must be registered on-line. Principals must notify all payments on relevant contracts to Revenue on-line from 1st January 2012. It will not be possible to notify a payment on-line unless the contract has been registered.

To ensure a smooth transition to the new RCT system, principal contractors will be able to register contracts on-line from 28th November 2011 (“contract notification”).

2 Mandatory electronic communication

All contacts between the principal (or agent on behalf of the principal) and Revenue will be through an on-line process.

All principals in the construction, forestry and meat processing sectors will be obliged to submit information, data, payments and returns to Revenue electronically.

3. RCT rates

The new system will have three rates: 0%, 20% and 35%. Subcontractors who satisfy the current criteria for a C2 card will qualify for the 0% rate. In certain limited cases a subcontractor will be placed at 35% e.g. subcontractors who are not registered with Revenue or where there are serious compliance issues to be addressed. All other subcontractors will be eligible for the standard 20% rate.

4. Overview of how the new system will work

  • 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.
  • Immediately before making a payment under the contract, the principal must notify Revenue (by electronic means) of his or her intention to make the payment and state the gross amount to be paid.
  • Revenue will issue a deduction authorisation to the principal. This authorisation will set out the rate of tax and the amount of tax to be deducted from the payment. The principal must provide a copy of the authorisation to the subcontractor.
  • Revenue will automatically credit RCT deducted to the subcontractor’s tax record. The RCT credit will be available for offset as it arises or for repayment annually.
  • Revenue will now have all the 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.
  • Payment should be made on-line by the due date (the 23rd day after the end of the period covered by the return).

5. Key benefits of the new RCT system for principal contractors

The administration burden will be reduced, for example, principals will no longer need to:

  • Order stocks of RCT forms,
  • Complete Forms RCTDC/RCT 46/RCT 46A,
  • Manually record payments on Forms RCT 48/RCT 47,
  • Complete the annual RCT 35 return,
  • Complete the paper copy of Form RCT 1 with the subcontractor – a streamlined contract registration procedure is incorporated into the new system.
  • There will be clarity on the RCT rate for each subcontractor: When a principal notifies Revenue of a relevant payment to a subcontractor on-line, Revenue will confirm by return the subcontractor’s RCT rate and the amount of RCT to deduct from the payment, via an on-line “deduction authorisation” for the payment

6. Key benefits of the new system for subcontractors

  • The standard RCT rate of 35% will be reduced to 20%.
  • Only one rate will apply to a subcontractor at any point in time. Principals will be obliged to apply this rate to payments to the subcontractor.
  • There will no longer be a requirement to jointly complete Form RCT46 with the principal in order to receive gross payments.
  • Subcontractors will no longer have to submit RCTDC claims to Revenue. When a principal notifies Revenue of a relevant payment, Revenue will automatically credit RCT deducted to the subcontractor’s tax record. This RCT credit will be available for offset against other tax liabilities as they arise or for repayment annually.

If you are unsure how any of the above affects you or your business do get in touch with us at info@irishaccounts.ie.

The information contained in this blog is for general guidance on matters of interest only and should not be construed as professional advice or service. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.

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