Changes to Relevant Contractors Tax
Changes to Relevant Contractors tax, RCT, that were announced in December 2010 will take effect in January 2012. This month we look at how the new system will work and what principal contractors need to be aware of in advance of its launch.
The first big change is that all communication between principal contractors and the Revenue will now be done online, there are no exceptions to this rule so all principal contractors will need to become familiar with ROS, Revenues online system in advance of Jan 2012. If you are already using ROS and are registered for RCT you will automatically be updated to the new system so you do not have to re-register. If however up until now you have been paper filing you will need to register for ROS ASAP. Some principals use their own software to manage contractor payments, if this is the case for you, you will need to start thinking about software updates to ensure your system is in line with the new rules. The Revenue Commissioners have a team dealing with software upgrades who can be contacted via the Revenue website.
The second big change is the notification you must give Revenue throughout the duration of the contract. In the new system, as a principal entering into a relevant contract with a subcontractor, you will now be obliged to provide Revenue with details of the contract online, including a declaration that the contract being entered into is not a contract of employment. This process will be known as "Contract Notification". Once you do this, Revenue will acknowledge your notification and advise you on the current rate of RCT the subcontractor should pay.
After this, you must notify Revenue online again, this time when you intend to make a payment stating the gross amount to be paid. This will be known on the system as "Payment Notification". As mentioned, there will be no paper RCT 1, RCT 46/46A or RCT 47 forms in the new system so you must transact online. When Revenue receive your payment notification they will issue you with details of exactly how much RCT should be paid on an electronic document called a "Deduction Authorisation" which you must pass this on to the subcontractor. Failure to properly notify Revenue will leave the principal liable for the RCT so it is very important that you do this in a timely manner.
There are three different rates in the system; 0%, 20% and 35%. Subcontractors who satisfy the current criteria for a C2 card will qualify for the 0% rate. In certain limited cases, subcontractors will be placed at 35% e.g. subcontractors who are not registered with Revenue or where there are serious compliance issues to be addressed. All other subcontractors will be eligible for the standard 20% rate
Lastly, when it comes to returns the new system should be more straightforward. Revenue will have all the details of the payments notified to them by you. You will now receive "Deduction Summary" either monthly or quarterly depending on your filing frequency, listing all of the payments Revenue has been made aware of. If the summary is correct, you simply need to arrange payment before the due date for the return. If the summary is not correct, you should make the necessary amendments online and submit the return by the due date. This new process will replace the RCT 30 return and no annual return will be required from the tax year 2012 onwards.
In summary, the new system does not expand the scope of RCT however it does change how you interact with Revenue as a principal contractor. All returns will be done online and the onus is on you to contact Revenue at different stages throughout the contract to ensure all RCT is correctly applied.
Any contracts which have commenced before the 1st January 2012 will also need to be registered under this new system where any payments will be made after the 31st December 2011. The online system will be available to Principal contractors from the 28th November 2011 and principal contractors can commence registering contracts from this date.
