| | | | | | | | | | | Relevant Contracts Tax – An Update
| | | Relevant Contracts Tax (RCT) is a withholding tax operated on payments made within the construction, forestry and meat-processing industries. RCT aims to ensure tax compliance in these industries. The current rate of RCT is 35% and it is withheld on payments made to sub-contractors in the above industries in the absence of valid payment cards (RCT 47).
Section 20 of Finance Act 2011 introduced radical changes to the RCT system and some of the main changes are detailed below.
An electronic RCT system will be introduced and will replace the current paper based system. The current C2 card system will also be abolished. There will now be three rates of RCT: 0%, 20% and 35% and the rate that applies to a payment will be determined by the sub-contractors tax compliance record. Monthly repayments of RCT will now be offset against other tax liabilities or treated as payments on account for Income Tax or Corporation Tax purposes.
The new system will involve three rates of RCT as follows:
Zero Rate – 0%
This rate shall apply to a person where the Revenue Commissioners are satisfied that the person:
a) is or is about to become a subcontractor engaged in the business of carrying out relevant operations,
b) carries on or will carry on business from a fixed place established in a permanent building and has or will have such equipment, stock and other facilities as in the opinion of the Revenue Commissioners are required for the purposes of the business,
c) keeps and will keep any business records in accordance with Section 886 (2) TCA 1997 and any other records normally kept in connection with such business,
d) has throughout the previous 3 years complied with all of his / her tax obligations in relation to the payment of taxes, the delivery of returns and the supply, on request, of information to Revenue, and
e) in the case where the person was resident outside of Ireland at some time during the previous 3 years, has throughout that period complied with the record keeping and tax obligations of the country in which they were resident.
Revenue has indicated that where a taxpayer meets the criteria for a C2 card at present, they will qualify for the 0% rate of RCT.
A proprietary director or proprietary employee of a company will not qualify for the 0% rate unless that company keeps proper records and has complied with all tax payment, filing and provision of information requirements throughout the past three years.
Look through provisions have been put in place in respect of relevant contracts between certain connected parties.
Standard Rate – 20%
This rate shall apply to a person where the Revenue Commissioners are satisfied that the person:
a) is or is about to become a subcontractor engaged in the business of carrying out relevant operations,
b) carries on or will carry on business from a fixed place established in a permanent building and has or will have such equipment, stock and other facilities as in the opinion of the Revenue Commissioners are required for the purposes of the business,
c) keeps and will keep any business records in accordance with Section 886 (2) TCA 1997 and any other records normally kept in connection with such business,
d) has throughout the previous 3 years complied substantially with his / her tax obligations in relation to the payment of taxes, the delivery of returns and the supply, on request, of information to Revenue,
e) in the case where the person was resident outside of Ireland at some time during the previous 3 years, has throughout that period kept proper and accurate records and has complied substantially with the record keeping and tax obligations of the country in which they were resident, and
f) has provided Revenue with whatever information is required to register the person for tax purposes.
Where Revenue forms an opinion that deductions made from relevant payments at the standard rate for a year of assessment will be insufficient to fully satisfy the income tax liability of the person for that year, the standard rate will not apply.
35% Rate
The default rate of Relevant Contracts Tax i.e. where the zero or standard rates do not apply, is 35%. This rate will apply where the subcontractor is not registered with Revenue or where there is a history of non-compliance.
Revenue may determine the appropriate rate of tax to be deducted and they shall notify the sub-contractor of their determination. Where a sub-contractor is aggrieved by the determination of Revenue they may make an appeal to the Appeal Commissioners.
Returns and Payments of RCT by Principal
Finance Act 2011 provides that returns of relevant payments must be made by principal contractors giving details of all relevant payments made during that return period, and these returns must be made electronically. The amount of RCT due must be specified on the return. Where the Revenue Commissioners issue a deduction summary to a principal, the details on the summary shall be deemed to be a return made by the principal of all relevant payments made by the principal in that period, and the amount of tax specified on the summary shall be deemed to be the amount specified by the principal of his or her tax liability.
Interest on late payments will be calculated at a rate of 0.0274% per day, or part thereof, from the due date until the date of payment.
Late returns and amendments to returns may be subject to a surcharge.
Refunds of RCT – The Offset System
Finance Act 2011 replaces the monthly repayments of RCT with an offset system whereby amounts due will be treated as payments on account and will be offset against liabilities to Income Tax or Corporation Tax. Therefore there will be no repayments of RCT made to a sub-contractor during the year. However, where Revenue are satisfied that the sub-contractor has paid all taxes due, RCT deducted, which is not required to be offset against other taxes due, may be repaid to the sub-contractor.
General
Revenue hopes to introduce the new system as soon as is practicable in 2011. In the meantime, the paper based system will continue to apply.
Moving to an on-line system should be positive step. The speed of decision making could allow compliant tax payers avoid the penal withholding tax regime that operates in industries that are covered by RCT legislation while continuing to protect the tax base. Time will tell!
**Please note that the above is merely an overview of the new system to be introduced. RCT can be a complicated matter and specialist advice should be obtained prior to acting. | | | | Please contact us if you require any assistance in relation to this matter. | | | | | | | | | | | |
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