Relevant Contracts Tax – Revised penalties from the 1 January 2015 for the failure of a principal contractor to operate Relevant Contracts Tax correctly on relevant payments to a subcontractor

A principal is obliged under section 530F of the Taxes Consolidation Act, 1997 to deduct tax from payments to subcontractors in accordance with the deduction authorisation which has issued. Section 17 of Finance Act 2014 introduced a revised sanction where principals fail to operate Relevant Contracts Tax (RCT) on relevant payments to subcontractors. The penalty that a principal will be liable for will be proportionate to the amount of the tax that should have been deducted. The principal will be liable for a penalty for each instance of non-operation of RCT after 1 January 2015 and this will be based on the status of the subcontractor.

• Where the subcontractor is registered with Revenue and is fully tax compliant and thus liable to a RCT deduction rate of zero, the principal will be liable to a civil penalty of 3% of the relevant payment.
• Where the subcontractor is registered with Revenue and is substantially tax compliant and thus liable to a RCT deduction rate of 20% - the principal will be liable to a civil penalty of 10% of the relevant payment.
• Where the subcontractor is registered with Revenue and is not compliant and thus liable to a RCT deduction rate of 35% - the principal will be liable to a civil penalty of 20% of the relevant payment.
• Where the subcontractor to whom the payment was made is not known to Revenue – the principal will be liable to a civil penalty of 35% of the relevant payment.

In all the above instances the principal will be required to submit an unreported payment notification to Revenue.

See Part 18-02-04 of the Income Tax, Capital Gains Tax, Corporation Tax section of the Tax and Duty Manuals.

24 December 2014