[18.2.5] RCT and Subcontractors
Sections 1 – 12 of this document cover the electronic RCT system
introduced from 1 January 2012.
Sections 13 – 22 cover the system in place for the years up to and including
2011
1.
Introduction
On 13 December 2011, the Minister for Finance signed the Commencement Order for the new electronic RCT system, which was introduced on 1 January 2012. The key changes affecting subcontractors are:
There are three rates in the new system: zero, 20% and 35%. The rate that will apply will be based on the subcontractor’s compliance record. A subcontractor has a right to appeal against the rate that Revenue has determined.
Features of the old system such as C2s, RCTDCs and Form RCT 1 are no longer in use and have been replaced by an electronic system which is mandatory for principal contractors.
Subcontractors will receive details from Revenue of contracts notified by principal contractors. Subcontractors will also be notified by Revenue when their rate changes.
When a principal notifies Revenue of a payment to a subcontractor, Revenue will respond to the payment notification with a deduction authorisation setting out how much tax, if any, must be withheld from the payment. The rates of tax are currently set at zero, 20% or 35%. The deduction authorisation will set out the gross payment, net payment, RCT rate and the amount of RCT to be deducted. The principal contractor must provide a copy of the deduction authorisation or the details on the deduction authorisation to the subcontractor if tax has been deducted.
Revenue will automatically put credit for any tax deducted onto the subcontractor's tax record. Interim repayments 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).
While principal contractors are obliged to engage with Revenue electronically in the new system, subcontractors, who are not also principal contractors, unless they are obliged under the Mandatory eFiling Regulations, do not have to register for the Revenue Online Service (ROS). Subcontractors who use ROS will be able to view all transactions on their RCT account online and correspondence from Revenue will be sent to their ROS inbox in real time.
2.
Contract Notifications
Principal contractors upon entering into a contract with a subcontractor are obliged to electronically provide information (see Part 18-02-04 ) regarding the contract to Revenue. Subcontractors are required to give the principal sufficient details to enable the principal to engage with Revenue including, in particular, their "official" name and tax reference number. The "official" name of a subcontractor is the name that is recorded on Revenue’s record (this is the name used in letters and other documentation issued by Revenue).
A principal is required to satisfy themselves as to the identity of the subcontractor concerned and shall require documentary evidence of identity from the subcontractor and the principal shall also make and retain a copy of the documentary evidence provided or record and retain relevant details from the documentary evidence given.
Where the Revenue Commissioners are unable to verify the identity of a subcontractor by reference to the name and tax reference number supplied by a principal, the RCT service 0shall require the principal to inform the subcontractor in writing within 7 days or before making a relevant payment to the subcontractor, whichever is the earlier
that- The Revenue Commissioners were unable to verify the identity of the subcontractor. Tax at 35% will be deducted from payments to the subcontractor and
The subcontractor should contact Revenue with a view to clarifying their identity. Although there will be no form RCT 1 to complete in the new system, the RCT 1
requirements are addressed as part of the contract notification process in which the principal will engage.
Once a principal notifies a contract, Revenue will send the subcontractor details of the contract and will include, for information purposes only, the rate of tax to be deducted that was last notified to the subcontractor. This rate shall not be taken as the rate of RCT applicable to payments to be made under the contract concerned. If any of the details are incorrect, the subcontractor should first raise the matter with the principal who may be able to amend the details (particularly if the issue relates to the estimated value of the contract). If necessary the principal has the option to amend the contract details and submit the revised details to Revenue or to cancel the contract notification. In the event of the principal amending the contract end date, location of work or estimated contract value, Revenue notifies the subcontractor of the changes submitted.
3.
Rates of tax and Determination of Rates for subcontractor
The criteria for determining the rates of tax (zero, 20% or 35%) for a subcontractor are set out in sections 530E, 530G, and 530H TCA 1997. The electronic system is designed to use the information available to it to determine an appropriate rate. As the information needed to determine the subcontractor’s qualification with certain criteria will not always be available to the system, case workers can override the determination made by the system. It should also be borne in mind that in the RCT system real time data is available that will allow officers make informed decisions on determining the correct rate.
Where a subcontractor’s rate changes a letter will issue to the subcontractor and to any principal contractor in an active contract with that subcontractor informing them of the change.
When are rates determined and how are rates changed?
1. Entering into a contract/becoming a subcontractor for the first time
When a principal notifies a contract to Revenue, the system will give the principal an indication of the subcontractor’s rate:
o If the subcontractor is already registered for RCT, and has already had a rate determined, the rate already determined will be retrieved.
o If the subcontractor is already registered for RCT, and has not already had a rate determined (i.e. this is their first contract under the new system and they registered for RCT after the last batch rate
determination run) the system will carry out a rate review using the rate determination rules in the system.
o If the subcontractor is not registered for RCT, the system will automatically register the subcontractor and carry out a rate review using the rate determination rules in the system.
If the subcontractor has not supplied a valid tax reference number and name, the system will determine a rate of 35%. This rate will continue to apply until the subcontractors have made themselves known to Revenue and a rate review has been carried out.
2. Self Service Rate Review.
Subcontractors who are registered for ROS can use the online function to view their rate or to request a rate review.
Subcontractors who are not registered for ROS can request a Revenue
caseworker to carry out the review on their behalf. Where a caseworker views a subcontractor’s rate and the returned rate is 20% or 35%, the reasons for the rate determination will be shown on screen to the caseworker.
The reasons for the rate determination will not be viewable to the
subcontractor using ROS. They will be advised to contact their local Revenue Office if they wish to query the rate.
Where a rate review is requested by the subcontractor or by a caseworker, the system will use the same criteria as the rate determination rules (see tables I, II, and III below). If, however, a caseworker has previously amended the rate and the end date has not yet passed, the subcontractor will be advised that a rate review is not available at this time and to contact their district for further details.
Where the rate returned by the review is different to the rate already
determined, the subcontractor/caseworker may choose whether to apply the rate or not. If the new rate is to apply, it is effective immediately if in day mode or from the next working day if in night mode.
The subcontractor will be allowed to generate a rate determination letter at their request, even if the rate has not changed. This letter is designed to facilitate subcontractors applying for public service contracts and can be used in place of the old C2. (See Section 11 and www.revenue.ie/en/tax/rct/tax-clearance-arrangements.pdf ).
3. Manual interventions
As mentioned in 2 above, a subcontractor who is not registered for ROS can request a caseworker to carry out the review on their behalf. The caseworker uses the “Review RCT Deduction Rate” function in ITP. The system will use the same criteria as the rate
determination rules (see tables I, II, and III below). The caseworker will be given an option to update the case with the returned rate. If the returned rate is 20% or 35%, the reasons will be displayed.
A subcontractor can specifically request that Revenue review their rate. This might arise where the subcontractor is unhappy with the rate determined, for example in a newly registered case with no IT or CT compliance history. In these circumstances the rate can be updated by the caseworker by using the “Input/Amend RCT Deduction Rate” function in ITP (see note below on inputting an end date)
Caseworkers will also come across cases during their normal day-to-day work and determine that the rate should be amended, up or down. For example, Revenue is authorised to apply the 35% rate where Revenue forms the opinion that deductions at the Standard Rate will be insufficient to satisfy the subcontractor’s tax liability for that year. Again caseworkers should use the “Input/Amend RCT Deduction Rate” function in ITP to amend the rate.
Where a formal appeal is made against the determination, such appeals must be made within 30 days of the date of the determination and every effort should be made to resolve the issue by agreement.
The following material is either exempt from or not required to be published under the Freedom of Information Act 1997.
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End Dates
Where the caseworker decides to amend a “system” rate, they must input an end date (which can be up to a year ahead). Until this end date has passed, the rate will not be amended by a bulk rate review and the subcontractor will not be able to carry out a self-review through ROS. When the end date has passed there is no automatic rate review or TR created. The rate will stay as it is until either amended by a bulk rate review, a caseworker, or the subcontractor through ROS. The rate end date can be amended by a caseworker at any time.
New Registrations
For new tax registrations, the system automatically grants a rate of 20% as a three year compliance history does not exist. However, this may be changed to 0% if the subcontractor satisfies Revenue that in all the circumstances the three year compliance period ought to be disregarded. The rate of deduction should be reviewed periodically by caseworkers and, if a subcontractor who has been allocated the 20% rate meets the necessary conditions, the deduction rate should be adjusted to zero. Similarly where a subcontractor no longer meets the conditions associated with either the zero or 20% rate the deduction rate should be adjusted upwards as appropriate.
4. Bulk Rate review
At predetermined intervals, the system will carry out a bulk rate review. The rate of every live subcontractor on record, except those with a rate end date that has not passed, will have their rate reviewed in the bulk review. The criteria that the system uses are set out in Tables I, II and III below. Again, it should be borne in mind that the system determines the rate based on the information it can access. All caseworkers should ensure that CRS records are updated on
an ongoing basis where directors or partnerships change to ensure that the system has access to the latest information and to reduce the need for manual interventions.
All subcontractors on record have been issued with a rate determination. Newly registered subcontractors are issued with a rate determination once a contract has been notified to Revenue. As rates are amended, either through bulk review, manually by a caseworker or by the subcontractor through the ROS self-review facility, the subcontractor, and all principals they have contracts with, will be notified of the new rate.
What criteria are used for determining the rate?
The criteria for determining the zero rate, the 20% rate (standard rate), and the 35% rate, are set out in sections 530E, 530G and 530H TCA 1997. The following sections look at common features and distinctions between the two.
A. The criteria for the zero rate can be categorised as follows:
Subcontractor subject to RCT
The contractor is or is about to become a subcontractor engaged in the business of carrying out relevant operations.
Fixed Place of Business
Subcontractor carries on or will carry on business from a fixed place established in a permanent building and has or will have such equipment, stock and other facilities as in the opinion of the Revenue Commissioners are required for the purposes of the business. Record Keeping
Subcontractor properly and accurately keeps and will keep any business records to which section 886(2) refers and any other records normally kept in connection with such a business. Compliance
Subcontractor has throughout the previous 3 years complied with all the obligations imposed by the Tax Acts, the Capital Gains Tax Acts and the Value-Added Tax Acts, in relation to—
The payment or remittance of taxes, interest and penalties,
The delivery of returns, and
The supply, on request, of accounts or other information to a Revenue officer, and in the case of a person who was resident outside the State at anytime during the previous 3 years, has throughout that 3 year period complied with all the record keeping and compliance obligations (comparable to those mentioned above) in the countries in which that person was resident during the 3 year period.
Partnerships
The rate that applies to partnerships is based on the compliance of the partnership business itself and the compliance of the individual partners. The highest rate determined for the partnership and each of the partners is the rate that applies to the partnership.
Therefore, to qualify for the zero rate, the partnership business itself and the individual partners must satisfy the criteria for the zero rate. To continue to qualify for the Zero Rate, Revenue must be satisfied that the partnership business itself will continue to meet the relevant compliance criteria.
Companies
To qualify for the zero rate, each director of the company and any person who is either the beneficial owner of, or able, directly or indirectly, to control more than 15 per cent of the ordinary share capital of the company, must satisfy the conditions for the zero rate in relation to record keeping and compliance for the zero rate as set out above.
Proprietary Director/Employee
A person who is or was a proprietary director or proprietary employee of a company engaged in the business of carrying out relevant contracts does not qualify for the zero rate unless the company satisfies the criteria in relation to record keeping and compliance for the zero rate as set out above.
Future Record Keeping and Compliance
To qualify for the zero rate, the Revenue Commissioners must consider that the person is likely to comply in the future with the obligations in relation to record keeping and compliance for the zero rate as set out above.
Connected Persons
The legislation sets out that if relevant operations (being construction operations, forestry operations or meat processing operations, as the case may be) similar to those being carried out or to be carried out by that person were previously, or are being, carried out by another connected person as described in the legislation, then the zero rate cannot apply unless the connected person satisfies the criteria in relation to record keeping and compliance for the zero rate as set out above.
Revenue Disregard
For the purposes of determining whether a zero rate should apply, the Revenue
Commissioners may disregard any of the requirements of section 530G, if a person satisfies them that, in all the circumstances, any requirement or requirements which would otherwise cause the person not to qualify for the zero rate, ought to be disregarded.
B. The criteria for the Standard Rate can be categorised as follows:
Subcontractor subject to RCT
The contractor is or is about to become a subcontractor engaged in the business of carrying out relevant operations.
Fixed Place of Business
Subcontractor carries on or will carry on business from a fixed place established in a permanent building and has or will have such equipment, stock and other facilities as in the opinion of the Revenue Commissioners are required for the purposes of the business. Record Keeping
Subcontractor properly and accurately keeps and will keep any business records to which section 886(2) refers and any other records normally kept in connection with such a business. Compliance
Subcontractor has throughout the previous 3 years complied substantially with all the obligations imposed by the Tax Acts, the Capital Gains Tax Acts and the Value-Added Tax Acts, in relation to—
The payment or remittance of taxes, interest and penalties,
The delivery of returns, and
The supply, on request, of accounts or other information to a Revenue officer, and in the case of a person who was resident outside the State at anytime during the previous 3 years, has throughout that 3 year period complied with all the record keeping and compliance obligations (comparable to those mentioned above) in the countries in which that person was resident during the 3 year period.
The “extent to which any non-compliance is being addressed” can be taken into account. Partnerships
The rate that applies to partnerships is based on the compliance of the partnership business itself and the compliance of the individual partners. The highest rate determined for the partnership and each of the partners is the rate that applies to the partnership.
To continue to qualify for the Standard Rate, Revenue must be satisfied that the partnership business itself will continue to meet the relevant compliance criteria.
Revenue Disregard
For the purposes of determining whether the standard rate should apply, the Revenue Commissioners may disregard any of the requirements of section 530H, if a person satisfies them that, in all the circumstances, any requirement or requirements which would otherwise cause the person not to qualify for the standard rate, ought to be disregarded.
C. Application of the 35% rate
Determination
The 35% rate shall apply where the Revenue Commissioners have determined that the subcontractor does not qualify for the zero or 20% rate.
Registration
The subcontractor must provide to the Revenue Commissioners whatever information is required by them to register the person for tax purposes (otherwise case is “unknown” and 35% applies).
Adequacy of payments
If the Revenue Commissioners form an opinion that deductions from relevant payments at the standard rate of tax for the year of assessment will be insufficient to fully satisfy the income tax liability of the person for that year, then the 35% rate applies.
The following material is either exempt from or not required to be published under the Freedom of Information Act 1997.
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Table III
Criteria for 35% Rate sections (530E, 530G, and 530H):
Specifics System
Check? What the system checks? Manual Check (if necessary)
Neither section 530G or 530H apply
Yes Whether section 530G or 530H criteria apply
Fixed Place of Business
No Fixed Place of Business is a
requirement under both sections 530G and 530H in the legislation. If it is not disregarded under those sections 35% rate applies.
Record Keeping No The extent of the record
keeping may only become apparent in the course of an intervention. If proper and accurate records are not being
kept and it is not disregarded under sections 530G or 530H, 35% rate applies. Compliance Individuals Yes Compliance Partnerships Yes – the partnership business and the individual partners. Compliance
Companies Yes - the company and each individual director
System checks the qualifying compliance criteria for zero and standard rates, including partners and fellow directors. If neither applies, by default, case is at 35%.
In addition, where the
subcontractor has one or more returns outstanding for 12 months or more the 35% rate will be applied.
Compliance Non-residents
No If a non resident company
cannot produce satisfactory evidence of compliance or substantial compliance, then 35% applies unless it is disregarded under sections 530G or 530H
Provided Revenue with registration information
Yes If not registered with Revenue
35% rate applies. These are the “unknown to Revenue” cases. Every effort should be made to have these cases regularise their affairs. Adequacy of
payments No If the Revenue Commissioners form an opinion that
deductions from relevant payments at the standard rate of tax for the year of
assessment will be insufficient to to fully satisfy the income tax liability of the person for that year, then the 35% rate may be applied.
This provision can be used where there is a risk of the enterprise going out of business before its Revenue debt has been cleared. This type of case will be
identified through normal caseworking.
4.
Payment Notifications
Immediately before a principal makes a relevant payment to a subcontractor the principal, under the provisions of section 530C TCA 1997, shall notify Revenue of their intention to make such a payment
The following information is included in the payment notification:
The identity of the subcontractor, including name and tax reference number; Identification of the contract to which the payment relates;
The gross payment amount.
Where a principal cancels a payment notification the Revenue Commissioners may, by electronic or other means, notify the subcontractor of the cancellation of the payment notification by the principal.
5.
Deduction Authorisations
On submission by a principal of a payment notification, a deduction authorisation is
instantaneously issued by Revenue to the principal’s ROS inbox. The deduction authorisation specifies the rate of tax (including as appropriate zero) to be deducted from the payment and authorises the principal to deduct a specified amount of tax from the relevant payment. The deduction authorisation is valid until the earliest of:
The making of the payment by the principal.
The due date relating to the return period within which the deduction authorisation was issued.
The making of the return by the principal for the return period within which the deduction authorisation was issued, and
The cancellation of the payment notification by the principal.
The deduction authorisation is only valid for the subcontractor and the relevant payment to which it relates, the principal should therefore check that the subcontractor named on the deduction authorisation is the correct person to whom the contract and the payment notification relate.
When a principal makes a payment to a subcontractor from which tax is deducted the principal must provide the subcontractor with a copy of the deduction authorisation. Alternatively, the principal may arrange for the following details from the deduction authorisation to be given to the subcontractor by written or electronic means:
The name and tax reference number of the principal. The name and tax reference number of the subcontractor. The gross amount of the payment.
The amount of tax deducted.
The rate at which tax was deducted. The date of the payment.
The unique reference number issued by Revenue on the deduction authorisation.
6.
Deduction Summary/Return
Section 530K obliges the principal to make a return to the Collector-General of all relevant payments made during the return period. At the end of each return period the Revenue Commissioners issue a deduction summary to each principal for the period. The deduction summary is created by Revenue based on the payment notifications made by the principal contractor during the return period. Depending on the principal contractor's filing frequency (monthly or quarterly) the deduction summary will cover one or three months.
The deduction summary will list all of the payments notified by the principal contractor to Revenue (one line item for each payment notified). It will also identify the total tax due for the period.
Where required, amendments should be made to the relevant line item(s) by the principal before the due date for the return, this can include:
The cancelling of payments previously notified which were not made within the return period, and
The amendment of the payment amount to a subcontractor where the payment differs from the amount specified in the payment notification due to exceptional
circumstances unforeseen at the time of the notification.
Where a principal amends a line item(s) on a deduction summary, the Revenue Commissioners shall notify the relevant subcontractor of details of the amendment.
7.
Partnerships
Where relevant operations are performed by a gang or group of persons (including
partnerships) notwithstanding that any payment or part of payment is made by a principal to one more of the gang or group or to some other person, then this payment shall be deemed to have been made to the individual members of the gang or group in the proportions in which the payment was to be divided amongst them.
Except where a separate payment to each member is made by the principal, a person
authorised by the group or in the case of a partnership the precedent partner shall in respect of the tax deducted from the payments give to the Revenue Commissioners
(a) The name, address and tax reference number of every person in the group and (b) Details of the proportion of the tax deducted to which each person is entitled.
On receipt of these details Revenue will notify each member of the group, in writing or by electronic means, the amount of income or corporation tax as having been paid by them.
8.
Treatment of Tax Deducted
Under the provisions of section 530P, where a principal deducts tax from a payment to a subcontractor, the tax will be treated as a payment on account by the subcontractor of either income tax for the basis year in which the income tax was deducted or of corporation tax for the accounting period of the company in which the tax was deducted.
Any tax deducted is also available for offset by Revenue against any other tax liabilities of the subcontractor. In effect, this means that no repayment of RCT may be made to a
subcontractor during the year in which the tax was deducted until such time as their tax return (Form 11 or CT1) has been filed, a notice of assessment has issued and all liabilities for income tax or corporation tax and other taxes have been discharged. Repayments are not dealt with automatically by the system but instead are processed manually by Revenue.
When RCT credit is offset against other tax liabilities, Revenue will issue a Statement of Account to the subcontractor. In addition, subcontractors can view all transactions regarding RCT and offsets online if they are registered for ROS.
9.
Outstanding RCTDC’s from earlier years
If a subcontractor still has outstanding RCTDC’s for years up to and including 2011 that were not submitted prior to the changeover to the new system, they can still be submitted after 31 December 2011. However, all repayment claims must be made to Revenue within four years from the end of the period to which the claim relates. Subcontractors should submit any outstanding RCTDC claims as soon as possible. As RCTDC claims will all relate to payments made prior to 1 January 2012 (date of introduction of the new RCT system), they will be processed under the old RCT system.
10. Record Keeping
Before submitting a payment notification a principal shall obtain from the subcontractor a statement setting out appropriate details of the work giving rise to the payment, the cost of the work and the subcontractors name, address and tax reference number. Where the work is being done by a gang or group of persons (including partnerships) the statement will bear the name, business address and tax reference of the gang or group and the names of the individual members of the gang or group.
Each subcontractor is required to keep and maintain a record of all relevant payments received and the record shall include for each payment, the date of the payment, the amount of the payment, the amount of RCT if any deducted and the name of the person who made the payment. The subcontractor will also keep a record of each deduction authorisation or copies of the details on a deduction authorisation supplied by a principal.
Any person who has made or received a relevant payment shall produce to a Revenue officer for inspection all documents and records relating to the relevant payment which have been requested by the Revenue officer.
11. Contracts for Public Sector Organisations
As there is no C2 card in the new RCT system, the current arrangements in relation to Tax Clearance Procedures for Public Service Contracts, Grants, Subsidies and similar type payments are being revised. Information on the revised procedures for Tax Clearance for Public Service Contracts has been posted on the Revenue website. See also Section 3 in relation to the generation of a rate determination letter which can be used in place of the old C2.
12. Non-resident Subcontractors
Where a non-resident subcontractor has suffered a deduction of tax on payments made by a principal, applications for repayments should be submitted to:
International Claims Section,
Office of the Revenue Commissioners, Collector General’s Division,
Government Offices, Nenagh, Co. Tipperary, Ireland. Telephone: +353 (0) 67 63400 Fax: +353 (0) 67 44182 e-mail: [email protected]
Individual applicants must complete a claim Form IC1. Company applicants must complete a claim Form IC3. These forms are available from International Claims Section upon request. The completed claim form must be certified by the Tax /Revenue authorities of the country of residence for tax purposes for the relevant tax year. While certification currently covers a period of three years please note that Revenue can request certification in respect of a claim at any time. It should also be noted that the current three year period is subject to review.
RCT for years up to and including 2011
13. What was a C2?
A C2 was a certificate of authorisation issued by the tax office to a qualifying subcontractor. A C2 was generally valid for one tax year. However, a C2 valid for three years could be issued to a subcontractor who –
Had average annual turnover from relevant operations exceeding €6,340,000 in three years ending with the most recent period to which accounts are made up
Had complied with all the requirements set out in section 531(11)(a)(i)-(iv) and (vii) TCA 1997.
Where an applicant did not comply with all the requirements above but was issued with a certificate under section 531(11)(b) TCA 1997 (at the discretion of the Revenue
Commissioners) the subcontractor was not entitled to a three year C2 merely because turnover arising from relevant operations exceed €6,340,000.
It should be noted that for the purposes of the turnover test, only turnover arising from relevant operations was taken into account.
Relevant payments cards (Form RCT47) were only valid for one year of assessment only; their validity was not extended by virtue of the existence of a three year C2. Accordingly, a subcontractor to whom a three-year C2 was issued would present the C2 each year to a principal to enable him/her to apply for Form RCT47.
An individual, partnership or company may have qualified for a C2. It was a personalised card similar to a credit card. It had a full-face photo and signature of the subcontractor or nominated user i.e. person authorised by a partnership, company or individual. A nominated user was generally a director of a company, a partner in a partnership or an employee of a business. The latest version of the card was introduced from 1 January 2008.
A C2 allowed the principal contractor to apply to the tax office for an RCT 47 for a subcontractor. Once the card had issued there was no need to deduct RCT from further payments made during the period to which the RCT 47 related. It is important that the payments card was received before making payments gross. The C2 carried the following text:
“This certificate does not authorise a principal contractor to make payment without
deduction of tax. A principal contractor should apply to the Inspector of Taxes for a Relevant Payments Card (RCT47), and must be in receipt of such a card in respect of the named subcontractor prior to making payments without deduction of taxes.
There are penalties for misuse of this certificate.”
The tax office could withdraw a C2 at any time. If this happened RCT was to be deducted from any further payments.
14. Who qualified for a C2?
To qualify for a C2 the subcontractor must:
Have been or been about to become a subcontractor in the construction, forestry or meat processing industry.
Have traded from a fixed place of business with adequate equipment, stock or other facilities. The fixed place of business need not have been within the State.
Have kept proper and accurate records.
Have had a satisfactory tax record. This means that all tax due had been paid (Income Tax, VAT, PAYE/PRSI etc.) and all tax forms and returns had been completed. The tax office generally examined the previous 3 years. In the case of a partnership the tax history of the partnership and each individual partner was examined. In the case of a company the tax history of the company and each director/person associated with the company was examined. If the subcontractor had been tax-resident in another country in the past three years, they will have needed to obtain a certificate from the Revenue
Authorities in that country, confirming that they had complied with the tax laws of that country.
15. Nominated User
Where the applicant was not an individual (e.g. a company or partnership) the RCT
regulationsprovide that the applicant should have nominated an individual to be a nominated user to whom the C2 would be issued.
A nominated user must have been:
In the case of a private company: a proprietary director.
In the case of a company other than a private company: a director. In the case of a partnership: a partner in that partnership.
However, where, in the opinion of the Inspector, it was impracticable that the nominated user be a director or partner, a full-time employee of the company or partnership who, in the opinion of the Inspector, was a suitable individual to be nominated to hold a C2 could be a nominated user. This exception was intended to cover subcontractors where, owing to the scale of operations, directors or partners would not have had direct day-to-day contact with principals or with the operation of the relevant contracts tax scheme.
The nominated individual in these circumstances would normally have held a senior position within the organisation e.g. Contracts Manager etc.
As soon as the nominated user ceased to act in the nominated capacity on behalf of the subcontractor (e.g. ceased to be a director, partner or full-time employee, is reassigned to other duties etc.) they were obliged to immediately surrender the C2 to the Revenue Commissioners.
Where the applicant was an individual they could nominate an employee to produce the C2 where the Inspector was satisfied that it would be impracticable for the applicant to produce his C2 in person to each principal contractor.
The C2 remained the property of the Revenue Commissioners at all times.
16. Issue of C2’s to subcontractors who did not already hold certificates.
Each application was to be examined to ensure that the following conditions are satisfied:(a) The applicant was, or was about to become, a subcontractor engaged in carrying out relevant contracts.
It is important that this condition was fulfilled in order to reduce the possibilities for misuse by uncertified subcontractors who were not in fact subcontractors. The applicant needed to provide evidence of contracts actually obtained or about to be obtained. The purpose of the requirement was to ensure
That the applicant was self-employed and
That the applicant had a legitimate need for the C2.
Where the applicant had just commenced trading, Revenue looked for a copy of the contract. The contract was checked to ensure that the principal contractor was a bona fide contractor.
Other information was checked to ensure that it was not a contract of employment and to determine the nature, value and duration of the contract.
Where there was no paper contract, a letter from a principal offering a contract was often submitted. The letter should have been on headed notepaper and would include the principal’s tax reference number. Such letters should have been examined by looking at the principal contractor and ensuring that they were bona fide principal contractors and that they had in fact offered the contract. If necessary the principal should have been contacted by phone. The bona fides of the subcontractor and their ability to carry out the contract should also have been examined.
Where there was an oral contract, the details in relation to the contract being offered should have been provided by the subcontractor on the Form RCT 5 and should have included the principal’s details, monetary value, the location and duration of the contract. Again the bona fides of the principal and subcontractor were to be checked.
Where a subcontractor had been trading as an uncertified subcontractor for some time, they were still required to submit the contract in respect of their latest contract.
In the case of labour only subcontractors, consideration would have been given to whether the C2 applicant would be self-employed i.e. in business on his/her own account. The onus was on the applicant to satisfy Revenue that they were, or were about to become, engaged in a business of carrying out a relevant contract. The details of the contract were entered into ITS. Unless the Inspector was satisfied that the subcontractor was self-employed, a C2 would not be issued.
(b) Fixed place of business and had, or would have, such equipment, stock and other facilities as in the opinion of the Revenue Commissioners are required for the purposes of the business
It is necessary that the business was carried on from a fixed place of business established in a permanent building with such equipment, stock and other facilities as were, in the opinion of the Revenue Commissioners, required for the purposes of the business. This reinforced the position that certificates were not, in general, to be issued to "labour only" subcontractors. A private residence owned by the subcontractor could be regarded as a fixed place of business provided the District was satisfied that the subcontractor traded from that address.
Even where the description of the trade as shown on the application form RCT5 suggested that the sub-contracting was not labour only, there may have been grounds for enquiring as to the precise nature and extent of the trade, the nature and extent of the materials supplied, where the materials were stored, the extent to which machinery and plant was used, where the machinery and plant was kept when not in use, the nature and extent of the business premises and the extent to which the applicant and the applicant’s employees were available at the place of business.
Where a person previously described in the person’s return of income etc. as a carpenter or other labour only tradesperson, applied for a certificate in relation to a trade, such as, plant hire, building contractor, etc. the application should have received special attention.
(c) Keeping of records
There were two requirements. Firstly, the records required by the provisions of section 886(2) Taxes Consolidation Act, 1997, and any other records required for the purposes of the business should be kept properly and accurately. [section 531 (11)(a)(iii)]
The second requirement was that there is good reason to expect that the required records would continue to be kept. [section 531 (11)(a)(v)]
In practice the applicant was regarded as satisfying the conditions in relation to the keeping of proper and accurate records if
In the case of an existing subcontractor, satisfactory accounts were furnished for years up to and including the period for income tax purposes forming the basis of assessment for the year preceding the year for which the C2 was sought, or
In the case of a new subcontractor, the completed form of application (Form RCT5) indicated that proper and accurate records were being kept and that satisfactory accounts would be furnished to the Inspector.
(d) Tax history
The applicant should during the qualifying period have complied with all obligations in relation to the payment and remittance of taxes, interest and penalties, the delivery of returns and requests for information. The qualifying period means the three complete tax years ending on 31 December in the year preceding the year in which the application is made, together with the period from 1 January to the date of the application.
In the case of an individual, the tax affairs of the following must have been up to date:
The C2 applicant as a sole trader
Any Company of which the C2 applicant was a proprietory director or proprietory employee. The affairs of the other directors of that company were not looked at. A proprietory director or proprietory employee has more than 15% of the shareholding.
Any partnership in which the C2 applicant was a partner in the qualifying period. This brought into consideration the tax compliance position of the partnership in respect of VAT, PAYE/PRSI, RCT and CGT. The C2 applicant’s share of the profits of the partnership was also brought into consideration but any personal Income Tax return should have incorporated the share of the profits of the partnership so this test will be satisfied by the sole trader’s Income Tax returns being in order.
A partnership applicant must have satisfied Revenue that:
The partnerships position in relation to VAT, PREM, CGT and RCT was in order.
The individual partners Income Tax was in order.
If one of the partners was also a sole trader in their own right, the VAT, PREM, PAYE/PRSI, CGT and RCT position of the individual as a sole trader must have been in order.
A company applicant must have satisfied Revenue that: The tax affairs of the following were up to date:
The company
Each of the directors
Any shareholder with more than 15% of the shares (who is not also a director).
Any other company which had as Company Secretary a director of the C2 applicant company.
Any other company, which had as Company Secretary a shareholder with more than 15% of the C2 applicant company.
Any other company that had more than 15% of the shareholding of the applicant company.
In the case of a person who was resident outside the State at some time during the qualifying period, proof was required that they complied with all comparable obligations imposed by the laws of the country in which they were resident during the qualifying period. This test mainly applied to non-resident contractors coming to the State. All applications from non-resident contractors in the construction industry were referred to Dublin City Centre District for screening and processing.
It also applied to Irish residents returning to the State after working abroad.
17. Extended Look Through
Section 531(11A) provides for an extended “look through” procedure in relation to applications for C2s. A C2 was not to be issued to an applicant where similar relevant
operations (i.e. construction operations, forestry operations or meat processing operations) to those being carried out or to be carried out by the applicant were previously, carried out by another person who is connected (within the meaning of section 10 TCA 1997) with the applicant in the circumstances outlined below unless that other person had also complied with their obligations as regards maintenance of records, payment of tax and delivery of returns. The persons who were to be considered as connected are –
Any company connected with the applicant or which would have been so connected but for the fact that the company had been wound up or dissolved without being wound up.
Where the applicant was a partnership, any company in which a partner or partners of that partnership, were able, directly or indirectly, either on their own or with a
connected person or persons, to control more than 15 per cent of the ordinary share capital of the company.
Where the applicant was a company, any partner or partners of a partnership who were able, directly or indirectly, either on their own or with a connected person or persons to control more than 15 per cent of the ordinary share capital of the company
These requirements applied in respect of applications for C2s made on or after 2 February 2006.
18. Inspector’s discretion
Section 531(11)(b) allows the Revenue Commissioners some discretion to disregard non-compliance with some of the conditions for the issue of a C2. The Revenue Commissioners could issue a certificate of authorisation to a person who did not satisfy one or more of the conditions, except the requirement that there was good reason to expect that the required records would continue to be kept. [section 531 (11)(a)(v)]. The Commissioners were to issue a certificate of authorisation in such circumstances where, in their opinion, they were satisfied that the failure of the person to satisfy any one or more of those conditions ought to be
19. Applications for a C2 by Non-Resident Subcontractors
All principal contractors and subcontractors engaged in relevant contracts in the Republic of Ireland are obliged to register for Relevant Contracts Tax.
Applications for a C2 by non-resident subcontractors in the construction sector (with no permanent establishment in the State) were to be addressed to:
Revenue Commissioners, Non-resident Unit, City Centre District,
9/15 Upper O’Connell Street, Dublin 1.
Telephone: 01-865 5000
Applications for a C2 by non-resident subcontractors in the construction sector with a permanent establishment in the State were to be addressed to the Revenue office for the geographic location where the business premises was located.
Applications for a C2 by non-resident subcontractors in the meat processing or forestry sectors were to be addressed to the Revenue office for the geographic location where the contract was being performed.
In the case of C2 applications, if the Inspector was not satisfied that the subcontractor had an established place of business the C2 was not to be issued. The subcontractor was to be so informed in writing, stating the reason, i.e. no established place of business.
In the case of a limited company qualifying for a C2 because it had an established place of business in this country, the question of its registration under section 352 of the Companies Act 1963 arose. Each such case was to be examined for possible corporation tax liability. Before a C2 was issued to any non-resident subcontractor the Inspector was to be satisfied that the P.A.Y.E. and Relevant Contracts Tax regulations were being properly complied with in relation to resident employees and all subcontractors for work carried out in the State. Non-resident applicants for C2s were asked to supply the following:
A then current contract confirming the nature, location, value and duration of the contract.
A letter of compliance (only original letters accepted, faxes not allowed) from their local Revenue Service confirming that they were compliant with all taxes for the last three years and from 1 January to date of application in the current year. If the applicant was a company they should have produced a letter confirming that the company, each director of the company and any Shareholder holding in excess of 15% of the company was compliant.
If the applicant was employed confirmation of the date he or she became self-employed.
If the applicant was a partnership confirmation that the partnership was registered in the subcontractor’s state of residence.
If the applicant was a company registered within the last three years a copy of the Certificate of Incorporation
Confirmation that they had a business premises (owned or rented) in their country of residence. If the premises was rented a copy of the rental agreement was to be provided.
A copy of the Form RCT1 that was completed by the principal contractor and the applicant.
If bank account details had been provided on the Form RCT 5, evidence that the bank account was in the name of the C2 applicant, e.g. a letter from the bank or a copy of a recent bank statement.
If the applicant employed subcontractors, they were to complete a Form P33 to register as a principal contractor. The residence position of the subcontractors engaged was not relevant when determining the deduction of RCT. If the work was carried out in the State, 35% RCT must be deducted from the gross payment unless the principal had been issued with a Relevant Payments Card for the subcontractor in question for that year.
If the subcontractor had employees they must submit a copy of the most recent employer return (P35 or equivalent) made to their own Revenue Service. They were also to supply the names and PPS numbers of all employees based in the State. With effect from 1 January 2006 all employers including non-resident employers must register for PAYE as an employer and operate PAYE/PRSI in respect of income attributable to the performance in the State of the duties of the foreign employment. Chapter 4 of the Income Tax Statement of Practice (SP – IT/3/07) on non-Irish employments exercised in the State provides details on the release for employers from the obligation to operate the Irish PAYE system.
20. Renewal of C2s for subcontractors already holding a C2.
(a) A C2 could be renewed if(i) Returns of income and accounts had been furnished and all income tax had been determined and paid,
(ii) Returns and accounts had been furnished and all corporation tax had been duly determined and paid, and
(iii) All P.A.Y.E. in respect of employees, including directors, and PRSI and Levies contributions, where relevant, had been remitted.
(iv) All Relevant Contracts Tax and VAT had been remitted
A failure under headings (i) or (ii) was not to be regarded as such if it was due mainly to a delay in the tax office in examining accounts, returns or other information furnished. (b) In the case of an individual who was also a partner in a partnership, the examination of
his or her tax history extended to the requirement in (a)(i) above in relation to his or her share of the partnership profits.
(c) Even where the tax history of a partnership, which was an applicant was satisfactory, it was necessary for the Inspector to be satisfied that the tax history of each partner is satisfactory as respects the requirement in (a)(i) above.
[Note section 531 (11)(ba)]
Revenue Commissioners are authorised to issue a further certificate without the need for an application.
The following material is either exempt from or not required to be published under the Freedom of Information Act 1997.
[…]
21. Cancellation of C2
A C2 could be cancelled for any of the following reasons
(a) The certificate was issued on the basis of false or misleading information.
Mere suspicion that the information on the basis of which the certificate was issued was false or misleading was not sufficient grounds for cancellation. It needed to be established beyond doubt that the information was false or misleading.
For example a labour only subcontractor, say a bricklayer, without a fixed place of business, may have described his trade as that of plant-hirer on the application form RCT 5. The description of the work on which he was shown as engaged on the form RCT 46 and on investigation by an outdoor officer might establish that he was not in fact a plant-hirer. In this event cancellation of the certificate would be justified.
(b) Information became available, which, had it been available at the time, would have resulted in the certificate not being issued.
(c) The holder of the certificate had allowed it to be misused.
Cancellation would be justified where it was established that the person to whom the certificate was issued had allowed it to be used by an unauthorised person.
(d) Where, in the case of a certificate issued to a company, there was a change in control of the company. 'Control' is defined as having the same meaning as in section 432 Taxes Consolidation Act, 1997.
This was to counteract a possible abuse of the C2 whereby persons who would not themselves qualify for a certificate obtained the use of one by buying into a company, which already holds a certificate.
(e) The holder failed to comply with any of the obligations imposed on him by the Tax Acts or by any of the regulations made thereunder.
Cancellation is justified where, for example, it is discovered that the subcontractor had failed to a significant extent to remit PAYE, PRSI, Levies, VAT, RCT, IT, CT or CGT.
(f) The sub-contracting business ceased to be carried on by the person to whom the certificate was issued.
o The subcontractor had died,
o The subcontractor had emigrated,
o The trade carried on by an individual was taken over by a company or a partnership, or
o The trade carried on by a limited company or partnership was taken over by an individual.
All correspondence addressed to certified subcontractors, which was returned D.L.O. was to be immediately examined to see whether the certificate should be cancelled in order to obviate possible misuse by uncertified subcontractors.
Before a C2 was cancelled for a reason outlined in either subparagraph (b) or (e) above, the subcontractor concerned was to be afforded a reasonable opportunity of complying with his or her obligations.
Where a C2 issued to a subcontractor was cancelled, a notice issued from ITP to each principal who held a relevant payments card in respect of that subcontractor. Where a principal received such a notice, he or she was required to deduct tax from any payments made to the
subcontractor after he or she received the notice and to return to the tax office any relevant payments card issued to him or her in relation to that subcontractor.
The subcontractor was to be advised of the cancellation of the C2, which he or she is then required to return to the tax office.
A principal contractor deducted RCT at 35% on all payments made to a subcontractor unless he/she has received a relevant payments card for that tax year from the tax office. This card could only be obtained where the subcontractor had a C2 and had shown it to the principal contractor.
22.
RCT Deducted
RCT is deducted on the gross payment, which includes VAT.
RCT deducted by a principal contractor is only a payment on account. The subcontractor still has to send in his/her return and comply with all their tax obligations as a self-employed person.
When the subcontractor received a payment from a principal contractor, from which RCT at 35% was deducted, he/she should have ensured that they received a completed RCT
Deduction Certificate (Form RCTDC). This form (originals only are acceptable) was then to be sent to the tax office so that RCT deducted could be either refunded or credited.
A subcontractor could make a repayment claim after the end of the income tax month in which the principal contractor made the payment. A repayment of RCT may have arisen where RCT deducted for the period is more than the estimated RCT due for the period.
To make a claim, the subcontractor would complete the appropriate section of the original Form RCTDC given to him/her by the principal contractor and send it to their tax office. They could have the RCT deducted by a principal contractor credited against any of the following taxes:
Any tax owed or estimated to be owed (e.g. Preliminary Tax) by the subcontractor in his/her own right
Any PAYE/PRSI owed for his/her employees
VAT
RCT deducted by the subcontractor (as a principal contractor) when making payments to subcontractors for whom he/she does not hold a relevant payments card.
Where the subcontractor did not have any outstanding tax liability the amount deducted by a principal contractor and shown on Form RCTDC could be claimed as a tax refund.
The following material is either exempt from or not required to be published under the Freedom of Information Act 1997.
