Changes to Relevant Contracts Tax (RCT) System

The new RCT Scheme is expected to be introduced on the 1st January 2012.

The new RCT scheme will operate as follows:

The current 0% and 35% rate will be replaced with the following rates:

  • 0% rate – this will apply to those that currently hold C2s and those that have been tax compliant for last three years.
  • 20% rate – this will apply to subcontractors registered for tax with a record of substantial compliance.
  • 35% rate – this will apply to subcontractrs that do not meet the conditions for the 0% and 20% rate. This would normally apply to subcontractors who are not registered with Revenue or who have a bad compliance record.
  • The current monthly RCTDC repayment system will be abolished and replaced with an offset and annual repayment system.
  • Mandatory electronic filing of payments and returns.

Once the new scheme is in place the procedure for operarting RCT will be as follows:

  • When a principal enters into a relevant contract with a subcontractor, they will be obliged to provide Revenue with details of the subcontractor and the contract using the mandatory online system. These contracts will be able to be registered from the 28th November 2011.
  • Revenue will then send an acknowledgement of receipt of this information to the principal.
  • Revenue will then advise both the principal and the subcontractor of the appropriate RCT rate to be applied.
  • Prior to making any payment to the subcontractor the principal must notify Revenue using the online system of their intention to make payment and of the gross amount to be paid.
  • Revenue will issue a deduction authorisation setting out the rate of RCT and the amount of tax to be deducted.
  • The princial must then pay the subcontractor the appropriate amount and give them a copy of the deduction authorisation.
  • Revenue will automaticlly put credit for any tax deducted onto the subcontractors record and the credit will be available for offset against other tax liabilites as they arise or for refund annually. There will be no need to submit RCTDC claims to Revenue.
  • A deduction summary will be issued to the principal prior to the due date for filing their return.
  • The principal then only needs to arrange payment for the 23rd day after the end of the period covered by the return.

All principals will have to ensure they are registered for ROS before the new scheme commences.

If you are a princiapl and operate an in-house RCT software system this will need to be updated for the new RCT system. If this applies to you contact Revenue and eRCTinfo@revenue.ie and they will ensure that you receive the necessary information.

If you require more information or assistance in implementation of the new system please contact us.

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