Contractors could face penalties of thousands of euros if they don’t comply with the new system of dealing with their RCT Withholding Tax online. The main problem is that many contractors may not know about the new rules or might not know how to use online systems.
That’s according to McLauglin McGonigle accountants in Buncrana. Marie Donaghey of McLaughlin McGonigle provides Inishowen Independent readers with this brief overview of the Revenue’s new online system for Relevant Contracts Tax (RCT): (RCT).
RCT is a withholding tax applied to payments made by principal contractors to their subcontractors under contracts in the construction, forestry or meat processing industry.
For periods starting on 1st January 2012 the old paper-based RCT system has been replaced by an electronic system and Revenue will no longer accept paper returns. All dealings between principal contractors and the Revenue must now take place online.
So how are Principal Contractors affected?
The first major change is that when a principal contractor takes on a subcontractor, they must provide Revenue with details of the contract online. This process is known as “Contract Notification” and replaces the old RCT1 and RCT46 paper forms.
The principal contractor must then notify Revenue online of the gross amount prior to making a payment to the subcontractor. This process is known as “Payment Notification”.
Revenue will respond by issuing a “Deduction Authorisation” to the principal contractor which will set out the rate of tax (RCT) and the amount of tax (if any) to be deducted from the payment. A copy of this is given to the subcontractor which effectively replaces the old RCTDCs – the pink slips.
A monthly or quarterly “Deduction Summary” will be issued by Revenue to the principal contractor listing all of the payments Revenue has been made aware of. If the summary is incorrect, the principal must make the necessary amendments online and submit the return, together with payment of the RCT deducted, by the due date. This process replaces the old RCT 30 return. The annual RCT 35 return will no longer be required from the tax year 2012 onwards (still required for 2011).
Stiff penalties and interest can arise for principal contractors who do not comply: Penalties of €5,000 for making a payment to a subcontractor without prior notification to Revenue, and €100 for making or amending a return after the due date.
How are sub-contractors affected?
Subcontractors are no longer required to have a C2 card to receive payments gross.
Under the new system, there are three rates of relevant contracts tax: 0%, 20%, and 35%. The rate applicable depends on the subcontractor’s compliance record: those who satisfy the current criteria for a C2 card will qualify for the 0% rate; in certain limited cases, subcontractors will suffer 35%; all others will be eligible for the standard 20% rate.
Sub-contractors no longer have to submit RCTDC claims (pink slips) to Revenue. When a principal notifies Revenue of a payment, the system automatically credits the RCT deducted to the subcontractor’s tax record, making it available for offset against other tax liabilities or for repayment annually.
RCTDCs received prior to 1 January 2012 can still be submitted to Revenue for repayment or offset against other taxes within 4 years from the end of the period to which it relates.
This article seeks only to highlight the main aspects of the new system. For more detailed information contact McLaughlin McGonigle, St Helens, St Oran’s Road, Buncrana, Co. Donegal. Tel +353 (0)74 9321420 / Fax +353 (0)74 9321421/ firstname.lastname@example.org