Last August, the Revenue Commissioners warned builders and tradesmen to ensure they remain tax compliant as the construction industry recovers from the downturn.
They have obviously been busy in this area in the meantime, as they have now publicly flagged their concerns on some key areas where mistakes are being made.
These centre on the incorrect operation of the VAT Reverse Charge and Country Money systems.
Under the VAT Reverse Charge system, each VAT-registered sub-contractor invoices a principal contractor net of VAT, and is paid the invoice total net of VAT.
The principal contractor must then calculate the appropriate VAT on the the sub-contractor’s invoice and must pay that VAT amount directly to Revenue in their VAT return.
Revenue have now highlighted the following specific problems in this area:
- Failure by Principal contractors to calculate the VAT and remit it to Revenue.
- Incorrect completion of VAT invoices by sub-contractors.
- Incorrect application of the two thirds rule.
- Errors in completing VAT returns (including ignoring the reverse charge altogether).
- Failure to apply the VAT Reverse Charge to construction supply transactions between connected parties.
They have also issued a fresh reminder of the strict conditions for tax-free Country Money travel and subsistence payments to transient building & electrical contracting workers.
In addition to the above issues, it almost goes without saying that full compliance with the Relevant Contracts Tax or eRCT system is absolutely essential for every contractor and sub-contractor in the building trade.
This system requires every contractor to register all contracts with, and payments to, all subcontractors, and obliges the contractor to deduct a percentage of tax from each payment where Revenue request this.
If you are a builder, tradesman or contractor, and have had difficulties or issues in complying with the various regulations, you may be liable to interest and penalties on any tax shortfall.
You can minimise your exposure by making an “unprompted voluntary disclosure” to Revenue and settling your tax, penalties and interest liabilities ahead of any Revenue audit or enforcement check on your business.
If you are considering such an option, I strongly recommend that you first obtain decent professional advice to protect your interests and ensure that you qualify for the concessions offered by the Revenue Audit Code of Practice.
Finally, here is the new Revenue eBrief outlining the above issues.