RCT or “Relevant Contracts Tax” only applies when a person in the building, forestry or meat processing industry works for a contractor. Contractors are not just other builders, they also include schools and water schemes for instance. Revenue are all over this.
The way it works is, before the job starts, the contractor tells Revenue that the subcontractor is working at a certain site.
RCT: When paying the subcontractor;
- Revenue tell the Contractor
- what tax to hold back,
- give to Revenue and
- let the Subcontractor claim it back (if he can)
A side issue is that the subcontractor does not charge the contractor vat, but they do charge everyone else vat. We also are hearing rumours that RCT will not be auto refunded if a business is in it’s first 3 years of trading. Beware.
It’s not easy to make money in any business, but this is a serious cashflow consideration that all builders or subcontractors in particular need to be aware of. Even if you think you are doing it right it can all go wrong. If you get a payment wrong, below are the penalties on the contractor:
- 0% deduction rate is a penalty of 3% of the relevant payment
- 20% deduction rate is a penalty of 10% of the relevant payment
- 35% deduction rate is a penalty of 20% of the relevant payment
- Unknown is a penalty of 35% of the relevant payment
Watch my video at the top of this post.
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