Relevant Contracts Tax – Watch the Pitfalls
Relevant Contracts Tax (RCT) is an area that can cause a great deal of confusion with businesses and unfortunately failure to operate the rules around RCT correctly can lead to significant tax penalties.
For RCT to apply, a principal must engage a subcontractor to provide services in one of the following areas:
- Construction Operations
- Forestry Operations
- Meat Processing Operations
Revenue provide detailed guidance as to what types of services they consider to be included in the above. Businesses operating in these areas should familiarise themselves with the types of services that could potentially come within the RCT regime.
If we take construction operations as an example, Revenue consider the following services to come within the scope of RCT:
- Installation / repair of telecommunications systems within buildings
- Operations such as site clearance, earth moving excavation, erection of scaffolding where these services form an integral part of construction operations
- Site investigation operations where the work involves a considerable amount of fieldwork
- The haulage of materials and plant or machinery used in construction operations.
The above list, which is not exhaustive, shows how businesses could unknowingly come within the RCT regime. Once the services provided come within the RCT rules it is important that both principals and subcontracts are familiar with the RCT rules including:
- The principal should notify Revenue once a contract has been entered into with a subcontractor
- The principal should notify Revenue of payments to be made to the subcontractor before the payment is made.
- The subcontractor should issue a zero-rated invoice to the principal and the principal is required to self-account for the VAT on a reverse charge basis.
There can be significant penalties for principals who operate RCT incorrectly – particularly if payments to subcontractors are not notified to Revenue.
It is important that businesses operating in these sectors are happy that they are meeting the RCT requirements where necessary.
If you have any queries regarding the scope of RCT or the operation of RCT please contact either Gordon, Gerry, Eamonn or Gillian in the tax team.