Significant Reform of the Relevant Contracts Tax system in 2011

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On Budget day, 7th December, the Minister for Finance announced that significant reforms will be made to the Relevant Contracts Tax (RCT) system to enhance its effectiveness, reduce opportunities for fraud and help decrease the administrative burden for businesses and Revenue. Details of the new system will be included in the Finance Bill 2011.

The current paper-based RCT system will be replaced by an electronic system, where principal contractors will be obliged to engage with Revenue online. The new electronic system will have three RCT rates: 0%, 20% and 35%. The rate that is applied to a subcontractor will depend on the subcontractor’s compliance record.

• Subcontractors who satisfy the current criteria for a C2 card will qualify for the 0% rate.
• The standard 20% RCT rate will, in general, apply to subcontractors who are registered with Revenue but do not satisfy the current strict criteria for a C2 card but have established a reasonably satisfactory compliance record.
• The 35% rate will apply to subcontractors who are not registered with Revenue or where there is history of non-compliance.

Revenue is currently developing the criteria for qualifying for each rate.

Key elements of the new scheme are:

• Principal contractors will apply online for confirmation of the RCT rate to apply to a subcontractor. Revenue will also send notification of the RCT rate directly to the subcontractor.
• In line with the reduction of the standard RCT rate of 35% to 20% (a reduction of over 40%), interim repayments to subcontractors will be replaced by an offset system which will be linked to the tax liabilities of subcontractors (i.e. No repayments of RCT will be made during the year).
• Revenue is also looking at ways of strengthening the payment reporting system.

Revenue hopes to introduce the new RCT system as soon as practicable in 2011 so that the new 20% rate can be provided to subcontractors who qualify. The broad framework of the proposal will be in the Finance Bill 2011 and will be followed by Regulations with the details. To underpin the implementation of these major changes to the RCT system, Revenue will engage with key stakeholders early in 2011.

For further information please contact Dylan Byrne

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