Relevant Contract Tax

Relevant Contracts Tax (RCT) is a tax deduction system in Ireland whereby a principal contractor:

• Deducts tax at 35% from payments to sub-contractors for whom he/she does not hold a relevant payments card (Form RCT47), on which the principal contractor records payments made without deduction of RCT, and
• Maintains a record of payments to all sub-contractors regardless of whether he/she holds a relevant payments card for them.

Relevevant Contracts Tax applies to the following industries:

• Construction operations
• Forestry operations
• Meat processing operations

Relevant Contracts

Relevant Contracts Tax only applies where the principal contractor and sub-contractor operate in the same industry. For example, a meat processor who contracts a builder to construct or extend his meat processing factory need not operate RCT on payments to that builder. RCT does not apply to professionals such as architects, surveyors etc.

A principal contractor in the construction, forestry and meat processing industry is a person who takes on a sub-contractor and who:

• Carries on a business which includes the erection of buildings or the manufacture, treatment or extraction of materials for use, whether used or not, in construction operations
• Carries on a business of meat processing operations in an establishment approved and inspected in accordance with the European Communities (Fresh Meat) Regulations, 1987
• Carries on a business of meat processing operations in an establishment approved and inspected in accordance with the European Communities (Fresh Poultry-meat) Regulations, 1996
• Carries on a business of forestry operations* which includes the processing (including cutting and preserving) of wood from thinned or felled trees in sawmills or other like premises or the supply of thinned or felled trees for such processing
• Is connected with a company which carries on any of the above businesses
• Is a local authority or a public utility society
• Is a Minister of the Government
• Is a board established by or under Statute
• Carries on any gas, water, electricity, hydraulic power, dock, canal or railway undertaking
• Is a sub-contractor who sub-contracts all or part of the contract to a sub-contractor.

What is the difference between a sub-contractor and an employee?

• Employees pay tax under the PAYE system
• Self-employed sub-contractors pay tax under the Self Assessment system.

The category he/she falls into depends on what they actually do, the way they do it and the terms and conditions under which they are engaged, whether written, verbal or implied. It is not simply a matter of calling the job 'employment' or 'self-employment'.

C2 Certificate

A C2 is a certificate of authorisation issued by the tax office to a sub-contractor who applies for and qualifies for one. C2s generally are valid for one tax year. An individual, partnership or company may qualify for a C2. It is a personalised card similar to a credit card. It has a full face photo and signature of the sub-contractor or nominated user i.e. person authorised by a partnership, company or individual. A nominated user is generally a director of a company, a partner in a partnership or an employee of a business.

A C2 allows the principal contractor to apply to the tax office for a relevant payments card for a sub-contractor. Once the card has issued there is no need to deduct RCT from further payments made during the period to which the relevant payments card relates.

The tax office can withdraw a C2 at any time. If this happens RCT must be deducted from any further payments.

A C2 is very useful to s sub-contractor. In general, a C2 means that payment can be made by a principal contractor without an RCT deduction.

To qualify for a C2 the sub-contractor must:

• Be or about to become a sub-contractor in the construction, forestry or meat processing industry
• Trade from a fixed place of business with adequate equipment, stock or other facilities. The fixed place of business need not be within the State
• Keep proper and accurate records
• Have a satisfactory tax record. This means that all tax due (Income Tax, VAT, PAYE/PRSI etc.) and all tax forms completed .The tax office generally examines the previous 3 years. In the case of a partnership the tax history of the partnership and each individual partner is examined. In the case of a company the tax history of the company and each director/person associated with the company is examined.