The Relevant Contracts Tax compliance system has undergone a complete transformation. The traditional collection of paper based forms, completion of monthly and annual returns, and even the familiar ‘C2 card’ or ‘C2 Authorisation’ has now been replaced by the new online ‘eRCT’ compliance system with effect from 1 January 2012.
The definition of a principal contractor has been extended to include those who carry out the installation, alteration or repair of telecommunications systems. ‘Relevant operations’, i.e. the type of activities to which RCT applies has also been broadened to include the repair or alteration of systems of telecommunications, previously only the installation of such systems was within the scope of RCT. Select a topic below for more about of how the new system will operate in practice.
From 1 January 2012 all RCT compliance, filing and payments, is conducted online using the Revenue Online System (ROS). All principal contractors should ensure they are registered to use the ROS facility if not already registered. Subcontractors should also register for ROS in order to access details regarding their RCT transactions.
The new RCT system has three deduction rates, the rate applicable to each subcontractor is determined by their own tax compliance history and status. Subcontractors who are fully compliant and satisfy Revenue of certain criteria have the benefit of a ‘Zero’ rate of RCT being applied, i.e. they may receive payments without an RCT deduction, provided they keep their tax affairs up to date. The new standard rate for RCT is 20% and is applicable to all registered subcontractors with a good compliance record. The 35% rate, will apply to all other subcontractors, in particular, subcontractors who are either not registered with Revenue for RCT or those who are registered, but may have tax compliance issues to be addressed.
The first step in the eRCT system is to input a “Contract Notification”. A Principal must notify Revenue online each and every time a new relevant contract is entered into with a contractor. Specific details regarding the contractor engaged and the contract itself is required. The Principal will receive a unique contract reference number and an indication of the applicable deduction rate for the contractor. A principal will need to obtain documentary “evidence of identity” from subcontractors for any new contracts.
A principal is not able to obtain the required Deduction Authorisation necessary to make a payment to a subcontractor without first having completed the Contract Notification stage in respect of the particular contract to which the payment relates.
A Contract Notification acknowledgement issues to the principal’s ROS inbox confirming the details received, this also indicates the RCT rate applicable to the contractor; however, this is for information purposes only. Details of each contract with a subcontractor has to be notified separately and is allocated a unique reference number, however, as a transitional measure for 2012 only one Contract Notification per subcontractor engaged is required. The subcontractor engaged will also receive details of contracts input.
Prior to making each payment a principal must obtain a Deduction Authorisation by inputting a Payment Notification on the eRCT system. A principal should indicate the full amount of the payment due to be made to the contractor. The eRCT system does not have a facility to allow amendments to a Payment Notification, however, if details input are incorrect, the notification may be cancelled and a new Payment Notification can be input. New RCT regulations were introduced and provide where a Payment Notification has been input and the payment is not going to be made, the principal should cancel the Payment Notification.
When a Payment Notification has been made a Deduction Authorisation will issue automatically to the Principals ROS inbox. The Deduction Authorisation will show the applicable RCT deduction rate and the amount of RCT to be deducted. The Principal should provide a copy, or, at minimum, the details contained in the Deduction Authorisation to the subcontractor.
Where a principal makes a payment without first obtaining a Deduction Authorisation the principal is liable to RCT at 35% regardless to the deduction status of the subcontractor to whom the payments has been made. In addition to the RCT amount, a penalty up to €5,000, may also be payable in certain circumstances. Revenue will verify the correct tax deduction rate applicable to the subcontractor and an adjustment to the liability for the period may be required. A subcontractor will receive an immediate credit on their tax record for the tax amount which may be set against other taxes due.
The new eRCT system prepares a pre - populated period end return known as a Deduction Summary, it is based on the Deduction Authorisations which issued during the period. The Deduction Summary is deemed to be the return made by a Principal and the amount of tax shown is regarded as the tax liability unless the principal amends and submits corrected details by the due date. The due date for confirming or amending the Deduction Summary is the 23rd day of the month following the period end.
A Deduction Summary displays ‘line items’ which details each Deduction Authorisation issued in respect of payments to subcontractors during the period. If the information is correct the Deduction Summary may be accepted or the details can be amended before the return due date. Where a principal amends any details on a Deduction Summary after the due date for that period an automatic surcharge of €100 will apply in addition to the tax due per the amended return.
The reduction in the standard deduction rate to 20% is welcomed, however, subcontractors are no longer able to apply for interim refunds of RCT deducted during the tax year. Instead, any tax deducted is credited against other tax liabilities the subcontractor may have. Any excess may only be refunded after the income/corporate tax return for the chargeable period has been filed and paid.
Both resident and non-resident contractors may seek refunds/offsets of RCT withheld within the statutory four year time limit.
If you have any queries or would like to arrange a meeting to discuss RCT issues with any of the Deloitte RCT team please contact:
Fergus Finnegan: +353 1 417 2497
Alan Kilmartin: +353 1 417 3630