New tax changes to come into effect for building contractors
QI have my own construction business and I believe that changes are proposed with regards to the operation of Relevant Contracts Tax in 2012. Can you please outline how the new system will operate?
AYou are correct, for the purposes of Relevant Contracts Tax (RCT); the current paper-based system will be replaced by an electronic system where all interactions between the principal contractor and Revenue will be by electronic means.
The new system will come into effect on 1st January 2012. From this date, all principal contractors in the construction, forestry and meat processing sectors will be obliged to submit information, data, payments and returns to Revenue electronically. In the new system, there will be three tax 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, subcontractors 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.
Subcontractors who are registered for RCT in the current system will automatically be registered for RCT in the new system. Similarly, all principal contractors who are registered for RCT in the current system will automatically be registered for RCT in the new system, if they are registered for ROS. Principal contractors should therefore register for ROS as soon as possible, to ensure their automatic registration.
Broadly speaking, under the new system when a principal contractor enters into a relevant contract with a subcontractor, he will be obliged to provide Revenue with details of the subcontractor and of the contract in question on-line. Confirmation will also be required that the contract being entered into is not a contract of employment.
Immediately before making a payment under the contract, the principal contractor 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 then issue a deduction authorisation to the principal contractor.
This authorisation will set out the rate of tax and the amount of tax to be deducted from the payment. The principal contractor must provide a copy of the authorisation to the subcontractor.
Revenue will then automatically credit RCT deducted to the subcontractor's tax record. If the subcontractor is registered for ROS they will be able to access their own records through ROS.
All things considered, the new system should be more transparent and a lot less cumbersome to operate than the previous incarnation. The different rates applicable should help alert contractors to the nuances of RCT system at an earlier stage and as a result hopefully prevent the tax catastrophes that have befallen contractors in the past.
That being said, given the large potential liabilities which can arise when RCT is not accounted for properly, I would advise that if you have any doubts about the implementation of the new system that you contact a qualified tax consultant to receive expert advice in relation to same as soon as possible. Jim Doyle ACMA QFA is a partner in RDA Accountants offering full accountancy, business advisory, tax advisory and financial services.
RDA Accountants | 5 Upper George Street, Wexford | Louisville House, Waterford Road, Kilkenny | 053 91 70507 | www.rda.ie RDA Wealth Ltd trading as RDA Accountants is regulated by the Central Bank of Ireland