Changes to RCT System - Information Note - February 2011
Changes to the operation of Relevant Contracts Tax (RCT)
Following on from the announcement by the Minister for Finance on Budget Day concerning reforms to the RCT scheme, a note on the proposed changes to the RCT scheme was provided on the Revenue website in December 2010. The Finance Act (enacted on 6th February 2011) gives a legislative base to these changes. Revenue is currently working on the design of the new scheme, which will have an impact on the sectors where RCT applies - Construction, Meat Processing and Forestry. To underpin the implementation of these major changes, Revenue is currently engaging with key stakeholders.
The key elements of the new scheme as outlined in Section 20 of the Finance Act are:
- Replacement of the current RCT rates of 0% and 35% with a three-rate withholding scheme: 0%, 20% and 35% (the 35% rate 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.
- An underlying feature of the scheme will be 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.
- Prior to 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 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.
- 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.
- If the subcontractor is registered for ROS, s/he will be able to see their own records through ROS.
- 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. 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 now have fulfilled his or her obligations.
- 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.
- Revenue can assess the liability of a principal, normally following an investigation or audit. A notice of assessment will issue in such cases.
Revenue will continue to keep customers informed as developments emerge.
Information on the new scheme can also be accessed through the following links:
- Finance Bill (Section 20) 2011
- eBrief No.12/2011 - Changes to the operation of Relevant Contracts Tax (RCT)
25 February 2011