Meeting C2 Obligations
In this our third article in the series relating to Revenue's increased focus on the construction sector, Revenue's Margaret Whelan, Chairman of the National Steering Committee on Construction, looks at tax issues affecting Certified Subcontactors - C2 Holders.
In the last article on Revenue's Construction Industry project we looked at some of the common errors made by Principals. Parts of that article were relevant to subcontractors, particularly in relation to registration for other taxes. In this article we look at the specific issues that arise for certified subcontractors i.e. those that hold a valid C2 (including principals who are subcontractors for some contracts).
In the next edition we will focus on the uncertified subcontractor i.e. does not hold a valid C2.
Form RCT 1 Procedure
When any subcontractor, certified or uncertified, enters into a relevant contract with a principal contractor, they must first satisfy themselves that a relevant contract exists. If the contract is a contract of employment, the subcontractor is an employee and the earnings are subject to PAYE/PRSI deductions.
The principal contractor and the subcontractor should examine the criteria for determining if a contractor is self-employed or an employee. If they are satisfied that the contract is not a contract of employment, they should jointly complete a Form RCT 1 - Principal Contractor / Subcontractor Declaration Form. The criteria to be considered are printed on the back of the form.
The RCT 1 is retained by the principal and must be made available for inspection by Revenue when required e.g. during site visits and audits, to ensure that workers engaged in the sector have been properly classified.
Legislation provides for penalties on the Principal and Subcontractor where the RCT 1 is not completed.
C2 Applications
A C2 allows a principal contractor to request authorisation from Revenue to make gross payments to the subcontractor. The C2 itself does not allow the principal to make payments gross, a Form RCT 47 is also required.
A C2 is a certificate of authorisation issued by the tax office to a sub-contractor (individual, partnership or company) who applies for and qualifies for one. It is a personalised card similar to a credit card. It has a full-face photo and signature of the subcontractor or nominated user i.e. person authorised by the partnership/company.
The conditions that must be met before a C2 can be issued are set out in legislation and Revenue will look to issue a C2 where these are satisfied. The C2 is a valuable document. Revenue has an obligation and duty to ensure that a C2 will not be issued to those who may misuse or abuse it.
Subcontractors apply for a C2 using the Form RCT 5 - Application by Sub-Contractor for Certificate of Authorisation (C2) .
Basic Guidelines for C2 applicants
- Apply early, and provide as much information as possible. There are a number of checks to be carried out to determine if an applicant qualifies for a C2 and these can be time consuming. Furthermore, the C2 contains a digitally engraved image of the photograph and signature, and this takes time to be produced.
- Applicants should already be registered for Income Tax or Corporation Tax before applying for a C2. The applicant should be registered for VAT or as an employer, if appropriate. It is expected that most applicants for a C2 will have a turnover that will bring them within the scope of VAT i.e. over €27,500.
- The applicant must be, or be about to become, a subcontractor under a relevant contract. A copy of the current relevant contract should be submitted. Where there is no written contract, the principal should provide a letter showing the terms of the contract. Such a letter should be on headed notepaper and include the principals' tax reference number. Where no written contract or letter can be provided, cases will be examined on their merit. The onus is on the applicant to satisfy Revenue that they are about to become a subcontractor under a relevant contract. The level of examination will vary from case to case.
- The applicant must keep proper and adequate records. If there have been issues in this regard in the past, highlight them and detail how they have been addressed.The applicant must trade from a fixed place of business with adequate equipment, stock and other facilities. Provide as much evidence as possible as to your ability to carry out the contract.
- The applicant must have had a satisfactory tax record during the "qualifying period "i.e. the three previous tax years and the period from 1 January to the date of application. If the applicant is a partnership the tax history of the partnership and of each individual partner is examined; for a company it includes an examination of each director/person associated with the company. The applicant and connected persons must have complied with all of their obligations throughout the qualifying period and not just be fully tax-compliant at the time of application. At a minimum, applicants should ensure that all of their current obligations are being met, and should offer an explanation where there have been issues during the qualifying period. Agents or customers registered for ROS can check their current compliance position on-line.
- Where the applicant is opting for the "nominated bank account" arrangement, evidence of the bank account in the form of original current bank statements should be submitted.
- Photocard and signature
A photocard must be completed and submitted with the Form RCT 5 - Application by Sub-Contractor for Certificate of Authorisation. The photocard (PC5) should have the photograph attached and the signature of the subcontractor/nominated user in the correct places. Applicants often fail to sign the form or submit a photograph that does not meet Revenue requirements. Every effort is made to process the applications as soon as possible, but there will be instances when further contact with the agent or taxpayer is necessary. - Nominated users
Companies and partnerships may nominate individuals who can enter contracts on their behalf. In the case of a company, the nominee must be a director or proprietary director of the company and for a partnership, the nominee must be a partner in that partnership. Where in Revenue's opinion it would be impracticable for an applicant to produce the C2 in person to each principal, the applicant may nominate a full time employee. The C2 will then issue bearing the nominee's photograph and signature, but using the C2 number for the company. - Collection in person
Applicants must collect the C2 in person and will be required to sign a receipt on collection. - Non-resident subcontractors
For C2 applicants, the qualifying criteria apply equally to resident and non-resident subcontractors. In the case of an applicant who has been resident outside of the State at some time during the qualifying period, they must have complied with all of the comparable obligations imposed by the laws of the country in which they were resident. Non-resident contractors should submit their applications to:-
Revenue Commissioners,
RCT/VAT Section,
City Centre District,
9/10 Upper O'Connell Street,
Dublin 1.
Telephone: 01-865 5000
An additional questionnaire must be completed by all non-resident applicants applying for a C2. It is available from the above address and on the revenue website: - Non resident contractors in the construction industry . - Appeal Provisions
Where Revenue refuses to issue a C2, the applicant will be notified in writing. The subcontractor can appeal the decision within 30 days of receipt of the notification.
In the course of audits, site visits and assurance checks, Revenue examine the operation of RCT in respect of C2 holders to ensure that principal contractors are operating correctly and that subcontractors are not misusing or abusing the C2.
The legislation provides for a fine on conviction of €1,265, or a six-month prison sentence, or both, where:- False statements are made or false documents or material are produced in support of an application for a C2
- Any person aids or abets in the obtaining a C2 by means of a false statement
- Any person uses a C2 issued to another person
- Any person who produces a false C2 to a principal.
Issues affecting C2 holders
Revenue will carry out checks after a C2 has been granted to ensure that the holder is continuing to meet their obligations. This may include contact with a principal or a site visit, but in many cases it will consist of an internal check on the subcontractor's compliance.
A C2 holder should keep the C2 secure and never let another person use it.
When the C2 holder secures a relevant contract, they must:
- produce the C2 to the principal in person. This requirement is relaxed where the C2 holder has notified Revenue of a nominated bank account and the principal agrees to make all payments due under the relevant contract into that account. In such circumstances the subcontractor need only notify the principal of the bank account details and C2 number that are entered on the RCT 46 (see below);
- jointly complete the Form RCT 1 with the principal contractor. The RCT 1 procedure must be followed in all instances. Be aware that a C2 holder may be considered an employee, depending on the terms of the specific contract; and
- jointly complete a Form RCT 46 - Application to Revenue Commissioners for a Relevant Payments Card with the principal. This allows the principal to apply for authorisation to make gross payments to the C2 holder. If applicable, the details of the nominated bank account are entered on the RCT 46. It is important that this form is submitted to Revenue well in advance of the first payment date under the contract. Revenue carry out internal checks when processing this form and the current compliance status of the subcontractor may be checked. A Form RCT 47 is issued to the principal if appropriate. It should not be taken for granted that this authorisation to make the payment gross (Form RCT 47) will issue in all cases. If no Form RCT47 is issued, the principal is obliged to deduct tax at 35 per cent from all payments to the subcontractor. [See next edition for article on the RCT tax deduction card scheme.]
- As part of its monitoring process, Revenue may include a contract limit on the payments card issued to a principal. Any payments made over the limit must be subjected to tax by the principal. The limit applies to each contract separately. In determining whether a limit is necessary, Revenue will take into account the size of the contract being undertaken and the subcontractor's ability to fulfil it and will provide for the expansion of the subcontractor's business. Where a subcontractor feels the limit is not sufficient for their business, they can apply to Revenue to have it raised or removed. A subcontractor may appeal against any decision of Revenue not to raise or remove the limit.
The legislation provides for penalties where the Form RCT 1 is not completed. Where a principal contractor makes a payment without deduction of tax without a Form RCT47, they are liable to pay the tax they should have deducted to Revenue.
Cancelling C2s:
Where Revenue becomes aware:
- of information which, if available at the time of issue, would have resulted in the refusal of a C2 application; or,
- that a C2 was issued on the basis of false or misleading information; or,
- that a C2 holder has allowed the C2 to be misused; or,
- in the case of a company, that there has been a change in the control of the company; or,
- that a C2 holder is not meeting their compliance obligations; or,
- that the C2 holder has ceased to trade,
it will cancel the C2 and notify all principals who hold RCT 47s for the subcontractor. The subcontractor will also be notified in writing and asked to return the C2. They can appeal the decision within 30 days of receipt of the notification. The C2 remains cancelled pending the decision of the Appeal Commissioners.
Failure to return the C2, or continued use of the C2 after it has been cancelled could result in a fine on conviction of €1,26, or a six-month prison sentence, or both.
Subcontractor's Checklist
- Have you registered for all appropriate taxes e.g. Income Tax, Corporation Tax, Value Added Tax or Employer's PAYE/PRSI?
- Before entering into a contract with a principal, have you consulted the guidelines on the back of the RCT 1 and correctly determined your status as an employee or self-employed contractor?
- If you are not an employee, have you completed the Form RCT 1 - Principal Contractor / Subcontractor Declaration Form jointly with the principal contractor?
- If you are an "uncertified subcontractor" have you received a Form RCTDC for each payment received?
- If you are an "uncertified subcontractor", are you including the gross payment in your computations for Income Tax/Corporation Tax?
- If you are an "uncertified subcontractor" have you submitted your Forms RCTDC to Revenue within the time limit?
- If you are an "uncertified non-resident subcontractor" have you completed and submitted Form IC 1/IC 3 and the relevant questionnaire?
- If you are applying for a C2 have you completed Form RCT 5 and supplied all relevant documentation in good time? In particular, are your tax affairs up to date?
- If you are applying for a C2 have you provided a photograph and signature in the required format?
- If you are applying for a C2 and propose to use the nominated bank account procedure, have you provided Revenue with documentary evidence of the nominated bank account?
- As a C2 holder, have you completed the Form RCT 1 - Principal Contractor / Subcontractor Declaration Form procedure before the contract commences?
- As a C2 holder who is not an employee, have you completed the Form RCT 46 in good time before the first payment is due?
- As a C2 holder, have you kept your tax affairs up to date?
- As an employer are you operating PAYE/PRSI on all payments made to your employees, excluding the approved agreements on "Country Money"?
- As an employer are you operating the approved "Country Money" scheme correctly?
Pull quotes
'The RCT 1 - Principal Contractor / Subcontractor Declaration Form is retained by the principal and must be made available for inspection by Revenue'.
'The applicant must have a satisfactory tax record'.
'Revenue has an obligation and duty to ensure that a C2 will not be issued to those who may misuse or abuse it'.