New VAT & RCT Guidance for School Boards

May 23, 2016

Revenue have issued new Guidance Notes for School Boards of Management on how Relevant Contracts Tax (RCT) and VAT affect school building projects and repairs & maintenance works.

Revenue Guidance Notes for Boards of Management on RCT and VAT.jpg

The RCT tax system applies to construction contracts where a principal contractor deducts tax from payments due to building contractors and tradesmen.

Since 2012, school Boards of Management have been counted as ‘Principal Contractors’ for RCT purposes.

Where a Board of Management undertakes construction works (including associated repairs or alterations to a building or structure), they  must operate RCT procedures on all payments to contractors.

In addition, they must file VAT returns, and make VAT payments in respect of VAT withheld under the Reverse Charge system.

There are serious penalties for failing to comply with these obligations, so school Boards should take special care to ensure that their VAT and RCT affairs are fully in order.

If you’re not fully certain of what exactly to do, avoid a potential nightmare by getting proper professional advice.


The Tax Mistakes Builders & Tradesmen Are Making

March 25, 2016

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.

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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.

Revenue Warn Builders: “We’re Back!”

August 31, 2015

The Revenue Commissioners have warned builders and tradesmen to be on their guard in relation to tax compliance, as the construction sector slowly recovers from its long recessionary slump.

The collapse of the building sector following the 2008/09 crash was a catastrophe, not only for those working in and earning a crust from construction, but also for Revenue, who had enjoyed booming tax receipts from the sector in the Celtic Tiger bubble years.

In its eBrief last week, the tax authority announced that it is beefing up its “compliance interventions” programme for the industry, in order to ensure that the State benefits fully from the recovery.

This centres mainly on the online Relevant Contracts Tax (eRCT) system, in addition to VAT and Employers’ PAYE/PRSI.

Revenue to Builders - We're Back!

Revenue have now flagged the following key issues:

  • Operation of the eRCT system, including full reporting of payments to sub-contractors, and notification of “Unknown” sub-contractors;
  • Reconciliations of Home Renovation Incentive (HRI) applications with VAT returns;
  • Cross-checking of eRCT, PAYE/PRSI and VAT returns with reported profit margins;
  • Reviews of VAT Reverse Charge and PAYE/PRSI procedures;
  • More attention on the vexed question of classifying employees vs. subcontractors; and
  • A fresh focus on the treatment of non-Irish resident principal contractors & sub-contractors.

Once underway, the Revenue  “compliance interventions” programme will entail more:

  • aspect queries – requests for documentation and other specific questions
  • profile interviews – interviews focusing on the key tax “compliance risk areas” identified by Revenue based on the taxpayer’s profile.
  • revenue audits – full examinations of tax returns and claims.
  • unannounced visits to construction sites.

Revenue are strongly encouraging builders and tradesmen to review their tax compliance, and regularise any shortcomings before they take action.

In many cases this will entail making an “unprompted voluntary disclosure” and settling tax, penalties and interest liabilities.

If you are going down this road, I strongly recommend that you first arm yourself with appropriate professional assistance and ensure that your proposal complies with the Revenue Audit Code of Practice.

Tradesmen: Revenue Big Brother Is Watching You

February 28, 2014

Revenue have recently used aggregated data from their electronic Relevant Contracts Tax (eRCT) system, to monitor and adjust the tax compliance rating of thousands of construction tradesmen and other sub-contractors.

The eRCT system came into operation on 1st January 2012, and applies to contractors in the construction, forestry and meat processing sectors.

It enables Revenue to pre-approve payments to sub-contractors, and have tax deducted from these payments.

Contractors must use the Revenue ROS platform to notify Revenue of each individual payment to their sub-contractors.

Depending on each sub-contractor’s individual tax record, Revenue will instruct their contractor to deduct zero, 20% or 35% tax from each gross payment.

RCT eRCTLast Friday, 21 February, Revenue conducted a “Bulk Rate Review” of their eRCT data, and have now used the results of this review to upgrade or downgrade the tax compliance rating of 19,130 sub-contractors.

There are 3 ratings used:

  • No tax deduction will apply where a subcontractor is fully compliant with his/her tax obligations
  • A 20% deduction will apply where a subcontractor is “substantially compliant”, and
  • a 35% deduction rate will apply where the subcontractor is unknown to Revenue or has outstanding tax compliance issues.

Revenue are now writing to affected sub-contractors to notify them of the changes to their eRCT ratings.

Meanwhile, in today’s Revenue eBrief, Revenue also confirmed that sub-contractors on the 35% deduction rate (ie, those with outstanding tax compliance issues) will NOT qualify for the Home Renovation Incentive (HRI) scheme.

The HRI scheme allows householders to claim a 13.5% tax credit on the cost of improvement works in their homes.

The message to tradesmen and sub-contractors is clear: Be very careful, Revenue’s Big Brother is watching you.

Today’s eBrief is here. See also Revenue’s Guide to Electronic RCT.

Today is P35 & RCT35 Deadline Day

February 15, 2011

Today, 15 February, is deadline day for 2010 annual returns by employers and  construction, forestry and meat processing contractors.

15 February is the annual deadline for filing of paper-format P35 returns with Revenue. A later deadline of 23 February applies to P35 returns filed online, where the liability is also paid online using the  ROS system.  The site contains some useful guidance in relation to P35 returns.

This year’s P35 deadline is also the final opportunity for employers to make Self Corrections to PAYE underpayments for 2009 under Revenue’s Self Correction rules.  This is especially relevant in the case of locum doctors engaged to work in GP practices and possible exposure to PAYE/PRSI arrears if  they are subsequently deemed to be working as employees.

Revenue have previously warned affected General Practitioners to regularise their 2009 PAYE/PRSI position, if appropriate, by today, 15 February, otherwise they may face penalties for non-compliance.  See this recent Revenue eBrief for more on this topic.   The ‘if appropriate’ qualification is important as in many instances the question of GP’s liability to PAYE/PRSI is not at all clear-cut.

Finally, today is also the deadline for principal contractors to file 2010 annual RCT35 subcontractors returns with Revenue.  A similar deadline extension to 23 February applies also to the RCT35 return.  Again this later deadline applies only where both the return and the RCT liability payment  are submitted to Revenue using  ROS.  A recent Revenue eBrief stresses the importance to contractors of filing the RCT35 return on time.

Contractors – Renew 2011 Payments Cards Now!

December 15, 2010

Contractors in the construction, forestry and meat processing trades must observe Relevant Contracts Tax (RCT) on payments to subcontractors.  If a contractor holds an RCT Payments Card for a subcontractor, they can make payments to the subcontractor without deducting tax, otherwise 35% tax must be deducted on all payments, and paid over to Revenue.

RCT Payments Cards due for Renewal at year-end

Payments Cards are renewable annually and contractors who currently hold 2010 Payments Cards for subcontractors, should now apply to Revenue as soon as possible to renew all such Payment Cards for 2011.

All payments to subcontractors must be paid net of 35%  unless the contractor making the payment holds a current RCT Payments Card for the subcontractor. This applies even if the subcontractor holds an up-to-date C2 certificate.

All 2010 Payments Cards expire on 31 December 2010 and it is up to the contractor to apply for new payments cards for 2011.

Form RCT46A can be used to renew a 2010 Payments Card for an ongoing contract, while Form RCT46 may be used to apply for a Payments Card for a new subcontractor.

There are heavy penalties for non-operation of RCT on subcontractor payments, and failure to observe RCT rules can cost contractors dearly.  Therefore, contractors should take extreme care to ensure that they are in full compliance at all times.