Revenue Note for Guidance

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Revenue Note for Guidance

531 Payments to subcontractors in certain industries

Summary

Section 531 sets out the statutory provisions governing payments to subcontractors prior to 1 January 2012. Sections 530A to 530V provide for a new e-based scheme of relevant contracts tax (RCT) which was introduced by order of the Minister for Finance with effect from 1 January 2012.

This section obliges a principal contractor to deduct tax at the rate of 35 per cent from payments made to subcontractors unless the subcontractor produces a certificate (known as a “certificate of authorisation”) and the principal holds, at the time of making a payment under a relevant contract to the subcontractor, a relevant payments card for the year in which the payment is made in respect of which the limit, if any, on the amount that can be paid without deduction of tax, placed on the card has not been exceeded and for whom the principal has not received a notice from Revenue cancelling the subcontractor’s certificate of authorisation issued under subsection (11). The Revenue Commissioners issue a certificate of authorisation where they are satisfied certain conditions in relation to a subcontractor are satisfied. The principal contractor must remit the tax withheld to the Collector-General. The section provides for the making of regulations by the Revenue Commissioners governing the operation of the scheme and also includes conditions for the issue and cancellation of certificates of authorisation, provision for penalties for offences and an appeal procedure.

Details

Deduction of tax

(1) Where any principal makes a payment to a subcontractor, the principal is required to deduct tax at the rate of 35 per cent from such payments and to pay the tax over to the Collector-General. It is to be noted that the obligation to deduct tax rests only on a person who is a contractor under another relevant contract or who is in business as a builder, land developer, meat processor or wood processor in their own right. The section does not apply as between a client and a contractor and does not, therefore, affect the ordinary householder.

Persons obliged to deduct tax

(1) The principal contractors who are obliged to operate the scheme are —

  • a person who, in respect of the whole or part of relevant operations to which the contract relates, is himself or herself the contractor under another relevant contract,
  • a person carrying on a business which includes the erection of buildings (or a person connected with a company carrying on such a business),
  • a person carrying on a business which includes the development of land within the meaning of section 639(1) (or a person connected with a company carrying on such a business),
  • a person carrying on a business which includes the manufacture, treatment or extraction of materials for use (whether used or not) in construction operations (or a person connected with a company carrying on such a business),
  • a person carrying on a meat processing business in premises approved and inspected in accordance with the European Communities (Fresh Meat) Regulations, 1997 (S.I. No. 434 of 1997) or, as the case may be, the European Communities (Fresh Poultrymeat) Regulations, 1996 (S.I. No. 3 of 1996), (or a person connected with a company carrying on such a business),
  • a person carrying on a business which includes the processing (including cutting and preserving) of wood from thinned or felled trees in sawmills or other like premises or the supply of thinned or felled trees for such processing, (or a person connected with a company carrying on such business),
  • a local authority or public utility society (this encompasses a society whose objects include the erection of houses or a body whose objects are wholly philanthropic and includes the provision of houses),
  • a Government Minister,
  • any board established by (or under) statute, or any board or body established by (or under) royal charter and funded wholly or mainly by the State,
  • a person who carries on any gas, water, electricity, hydraulic power, dock, canal or railway undertaking.

(2) A person is outside the scope of the scheme where in the course of that person’s business he/she erects buildings or develops land for his or her own use or occupation or for the use or occupation of that person’s employees.

(2A) In general, a person will not be regarded as a principal by reason of that person’s connection with a company of a type specified in the foregoing and will not, therefore, be required to operate RCT, where the person makes payments to a subcontractor engaged solely to carry out construction operations on the person’s own business premises or private dwelling and so long as the person is not engaged in a construction type business. Where the person is engaged in a construction type business, the connected persons rule continues to apply unless the person is a company.

Gang or group of subcontractors

(3) Where on or after 15 May 1996, a principal contractor makes a payment in respect of a construction, forestry or meat processing operation to one or more of a gang or group of persons or to some other person on behalf of the gang or group, then the principal contractor is treated as having made a payment to each individual member of the group or gang equal to their respective share. A gang or group is formed where a number of subcontractors come together to collectively perform a relevant contract for a principal.

Making of monthly/quarterly returns

(3A) Certain persons are required to make monthly/quarterly returns of deductions made, including a nil return, if applicable, not later than the 14th day of the month following the return period and to remit any tax deductable. The Collector will authorise only certain principals to make quarterly returns. The Collector-General will issue either an individual receipt for the payment or a periodic statement of payments made in a specified period.

(3AA) Where the return and remittance are both made by electronic means the due date is extended from the 14th to the 23rd of the month. Where either the return or remittance is made electronically but after the 23rd of the month, the due date reverts to the 14th.

Special Rule

(3B) For the tax year 2003 and subsequent tax years, a special rule applies where a principal contractor makes a remittance in respect of a tax year or a period within a tax year and the remittance is not included in a normal monthly/quarterly return. In these circumstances, the remittance is deemed to be in respect of the first income tax month of the tax year, i.e. it will be treated as being due on 14 February in the tax year. However, where interest (on late payment) is demanded by Revenue in accordance with this rule, then, if, within one month of the demand, the principal contractor makes returns in respect of the amounts comprised in the remittance, this rule will not apply and, instead, the remittance will be treated as a remittance or remittances for the income tax period or periods in question. This will then enable interest to be charged on late payment under subsection (9) in the normal way, i.e. interest will be charged on the basis that the tax due for each such period is due 14 days after the end of the month.

Computation of profits

(4) Where for the purposes of Schedule D the profits or gains of a subcontractor are being computed, the gross amount of the payment which has suffered deduction of tax is included in his/her accounts and not the net sum which he/she has received after deduction of tax.

Credit for tax deducted

(5) A subcontractor is given credit against his/her tax liability for the tax deducted from the payments he/she received less any tax which has been repaid.

(5B) This subsection clarifies when a subcontractor gets credit for RCT deducted.

Regulations

(5) & (6) The Revenue Commissioners are required to make regulations to regulate —

  • how credit is to be given for the tax suffered by deduction,
  • for monthly repayments of the excess of tax deducted over the proportionate amount of the subcontractor’s liability or estimated liability for the year of assessment, and
  • for repayment where the tax deducted, and not already repaid, exceeds the amount of the subcontractor’s liability not only for income tax but also for VAT, capital gains tax, PAYE tax deductible from employees and PRSI contributions (including health contributions and employment and training levies).

The Revenue Commissioners are also required to make regulations (which may include matters which could be included in Regulations made for the purposes of PAYE) with regard to the assessment (including estimated assessment), estimation, charge, collection and recovery of the tax deducted. These regulations may include provision for —

  • the issue for a period not concerning more than 2 years of assessment, or, in relation to such class or classes of subcontractor as may be specified in the regulations, for such longer period as may be so specified, of certificates of authorisation;
  • the refusal to issue, appeal against refusal to issue, recall or cancellation of certificates of authorisation and the surrender of such certificates;
  • the production of documents or other material, including a photograph of the subcontractor or, in a case where the subcontractor is not an individual, a photograph of the individual by whom the certificate of authorisation is to be produced in accordance with subsection (12)(a), in support of an application for a certificate of authorisation;
  • requiring the parties to a relevant contract (unless specifically excluded by the Regulations) to make a declaration before entering into that contract to the effect that both parties are satisfied that the contract is, in their opinion, a relevant contract and is not a contract of employment (in making these declarations the persons concerned are required to have regard to guidelines published by the Revenue Commissioners as to the distinctions between a relevant contract and a contract of employment). The declaration made is without prejudice to the actual legal position in the case of any particular contract;
  • providing for the publication of guidelines by the Revenue Commissioners concerning the distinction between a contract of employment and relevant contracts;
  • providing for the keeping and inspection of such declarations and for their delivery by principals to Revenue;
  • the setting up and maintenance by the Revenue Commissioners of a register containing details of every person who is a principal within the meaning of section 530(1);
  • requiring a person to satisfy the Revenue Commissioners that the person is a principal, within the time limits and in the manner specified in the regulations;
  • the keeping by principals of such records as may be specified in the regulations;
  • the keeping by principals of relevant payments cards and all details of entries on such cards as may be required by the regulations;
  • the keeping by subcontractors of such records, as specified in the regulations, containing details of payments received, and the inspection of such records;
  • the completion by principals of certificates of tax deducted from payments made to subcontractors and the details to be included on such certificates;
  • ensuring that all information required by principal contractors to comply with the regulations is furnished by subcontractors;
  • the issuing to subcontractors of statements showing particulars of their tax liability (if any) for a year of assessment.

(5A) Where an uncertified subcontractor claims repayment of excess tax deducted under the section, the claim is subject to the 4 year time limit that applies under section 865 to repayment claims in general.

(7) Every regulation made under this section must be laid before Dáil Éireann, and every such regulation is to be valid unless, within 21 days of the regulation being laid, a resolution annulling the original resolution is passed. Anything validly done before the passing of a resolution annulling the original resolution remains valid.

(8) The Income Tax (Relevant Contracts) Regulations, 2000 (S.I. No. 71 of 2000) have been made under these provisions.

Recovery of interest on tax deducted

(8) All enactments and regulations which apply to the recovery of tax due under this section apply also to the recovery of interest charged under this section.

(9) Interest is chargeable at a simple interest rate of 0.0274 per cent for each day or part of a day during which tax deducted under this section remains unpaid.

(10)(i) Where an inspector of taxes makes a monthly/quarterly estimate of tax due under this section, any interest due on such tax is chargeable at the rate set out in subsection (9) for each day or part of a day and is chargeable as if the tax remained unpaid from the period or periods for which the estimate is raised.

(10)(ii) Where an inspector of taxes makes a yearly estimate of tax due under this section, any interest on such tax is also chargeable at the same simple interest rate and, in the case of the tax year 2002 and earlier years, is chargeable as if the tax remained unpaid from the last income tax month of the year to which the estimate relates. In the case of the tax year 2003 and subsequent years, for the purposes of charging interest on overdue tax, tax due on foot of a yearly estimate will be treated as being due for the first income tax month of the tax year, that is, it will be treated as being due on 14 February in the tax year. However, where the inspector or, on appeal, the Appeal Commissioners determine the periods to which the tax relates, interest will be calculated as if the amounts that relate to the respective income tax months were included in a monthly/quarterly estimate notice issued, that is, the interest will be calculated in accordance with subsection (10)(i).

Certificate of authorisation

(11)(a) The Revenue Commissioners are to issue a “certificate of authorisation”, (C2), to a person, on application by them, if they are satisfied that he/she meets with all of the following conditions —

  • the person is or is about to become, a subcontractor engaged in the business of carrying out relevant contracts;
  • the business is, or will be, carried on from a fixed place of business 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;
  • proper books and records will be kept in relation to the business;
  • the person has paid all his/her due taxes, interest and penalties and delivered all necessary returns, and supplied all information requested by his/her inspector of taxes;
  • there is a good reason to expect that, in the future, the person will keep proper books and records and will pay all his/her due taxes, interest and penalties and deliver all necessary returns, and supply all information requested by his/her inspector of taxes.

Certificate of authorisation and non-resident subcontractors

(11)(a) An applicant for a certificate of authorisation (C2) who has been resident outside the State at some time during the qualifying period will have to satisfy the Revenue Commissioners that he/she has complied with his or her tax obligations in the country of residence during the qualifying period.

(11)(b) Despite the conditions of subsection (11)(a), the Revenue Commissioners may issue a certificate of authorisation to a person who does not satisfy one or more of those conditions. The Commissioners are to issue a certificate of authorisation in such circumstances where, in their opinion, they are satisfied that the failure of the person to satisfy any one or more of those conditions ought to be disregarded.

The Revenue Commissioners may issue a certificate of authorisation without the need for the person concerned to make a further application to them in that regard provided they are satisfied in relation to the standard compliance requirements under subsection (11)(a) or where the provisions of subsection (11)(b) apply.

(11)(c) A certificate of authorisation is only valid for such period as the Revenue Commissioners may, by regulation, provide.

(11A) A certificate of authorisation is 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, or are, carried out by another person who is connected with the applicant in certain circumstances, unless that other person is also in compliance with the obligations as regards maintenance of records, payment of tax and delivery of returns. The persons who are to be considered as connected are —

  • any company connected with the applicant,
  • where the applicant is a partnership and the same relevant operations were or are carried out by a company in which a partner or partners of that partnership are or were able, directly or indirectly, either on their own or with a connected person to control more than 15 per cent of the ordinary share capital of the company, that company, or
  • where the applicant is a company and the same relevant operations were or are carried out by a partnership and a partner or partners of that partnership are or were able, directly or indirectly, either on their own or with a connected person to control more than 15 per cent of the ordinary share capital of the company, that partner or partners

Relevant payments card

(12) Where a subcontractor to whom a certificate of authorisation (C2) has been issued wishes to receive payment from the principal contractor without deduction of tax, he or she must produce the C2 in person to the principal contractor. The principal contractor must then apply to the Revenue Commissioners for a “relevant payments card”. This card is used to record payments in respect of relevant contracts between the principal contractor and the subcontractor. When a principal contractor receives a relevant payments card, he/she may then, subject to any limit imposed on the card, make payments without deduction of tax. The requirement for the subcontractor to produce the C2 in person to the principal contractor is relaxed in two circumstances —

  1. where the subcontractor has nominated a bank account to the Revenue Commissioners into which all payments are to be lodged by the principal contractor, and has provided details (i.e. the number) of his/her C2 to the principal contractor.
  2. where the principal contractor already holds a payments card for the subcontractor and the contract for which the payments card was issued is likely to be ongoing at the end of the year of assessment, and the principal contractor has obtained details (i.e. the number) of the subcontractor’s C2 for the year of assessment to which the application for the relevant payments card relates.

Limits on Relevant Payments Cards

(12)(e) to (i) Where the Revenue Commissioners consider it requisite to do so to protect the revenue, they may impose a limit on the amount that can be paid without deduction of tax on a Relevant Payments Card, subject to the following conditions—

  • the Revenue Commissioners, either at the request of the subcontractor named on the card or otherwise, may, as they consider it appropriate, amend the limit by reducing, increasing, or removing it,
  • where the Revenue Commissioners amend a limit they are to issue a new Relevant Payments Card to the principal concerned,
  • the subcontractor is to be informed of any limit, or revised limit, imposed on an Relevant Payments Card issued in relation to him or her,
  • where payments made to a subcontractor exceed any limit imposed on the Relevant Payments Card issued in relation to the subcontractor, tax is to be deducted under the section from the excess and accounted for by the principal in the normal way.

Cancellation of certificate

(13)(a) The Revenue Commissioners may, by notice in writing to a principal, cancel a subcontractor’s certificate of authorisation if —

  • the certificate was issued on the basis of false or misleading information;
  • the certificate would not have issued if information obtained subsequent to its issue had been available at the date of issue;
  • the person to whom the certificate was given has allowed it to be misused;
  • where the certificate was issued to a company, there has been a change in control of the company;
  • a person to whom a certificate was issued has failed to pay all his/her taxes due or failed to deliver all necessary returns or failed to supply all information requested by his/her inspector of taxes;
  • the business of carrying out relevant contracts in relation to which the certificate was issued has ceased.

(13)(b) A principal who has been notified that a subcontractor’s certificate of authorisation has been cancelled must —

  • deduct, on or after the date of the notice, tax from any person to whom the notice relates;
  • return to the Revenue Commissioners any relevant payments cards and any relevant tax deduction cards issued in respect of the person to whom the notice relates.

(13)(c) The Revenue Commissioners must notify a subcontractor of the fact that a certificate of authorisation has been withdrawn. In such circumstances the subcontractor must return the certificate of authorisation.

Penalties

(14)(a) A person is liable (on summary conviction) to a fine of €5,000 or, at the direction of the court, a term of imprisonment not exceeding 6 months or to both the fine and the imprisonment, where that person —

  • for the purpose of obtaining a certificate of authorisation or a relevant payments card, makes a false statement or furnishes any document which is false in a material way,
  • disposes of a certificate of authorisation otherwise than by way of return of the certificate to the Revenue Commissioners,
  • fails to return a certificate of authorisation to the Revenue Commissioners when requested to do so,
  • is in possession of a certificate of authorisation that was not issued to him or her by the Revenue Commissioners, or
  • produces to a principal a certificate of authorisation after such person has been advised of the cancellation of that certificate.

(14)(b) A person is liable (on summary conviction) to a fine of €5,000 or, at the direction of the court, to a term of imprisonment not exceeding 6 months, or to both the fine and the imprisonment, where that person aids, abets, counsels or procures —

  • the obtaining of a certificate of authorisation by means of a false statement,
  • the use by any person, other than the person to whom it was issued by the Revenue Commissioners, of a certificate of authorisation, or
  • the production to a principal of a document that is not a certificate of authorisation, but purports to be such a certificate.

(14)(c) A person is liable (on summary conviction) to a fine of €5,000 where that person —

  • fails to enter the required details on a relevant payments card or relevant tax deduction card,
  • fails to return to the Revenue Commissioners a relevant payments card or a relevant tax deduction card which have been cancelled,
  • returns to the Revenue Commissioners a relevant payments card or a relevant tax deduction card on which entries have been incorrectly entered,
  • fails to comply with any provision of regulations made under this section requiring such person —
    • to make any declaration,
    • to provide any information or particulars to principals,
    • to keep or produce any records, documents or declarations, or
    • to deliver declarations to the Revenue Commissioners,
  • fails to give a subcontractor from whose payment tax has been deducted, a certificate of deduction on the prescribed form, or
  • being a company to which a certificate of authorisation has been issued, fails to notify the Revenue Commissioners of a change in control of the company.

Time limit for taking summary proceedings, etc

(15) The time limit for taking summary proceedings in respect of offences under this section is 10 years.

(16) Certain administrative provisions in relation to the evidence in proceedings for recovery of penalties applies also to the relevant contracts regime.

Appeals

(17) Any person aggrieved by a refusal of the Revenue Commissioners to issue a certificate of authorisation may, by notice in writing, within 30 days of the date of the refusal, apply to have their application for a certificate heard and determined by the Appeal Commissioners.

(17A) Any subcontractor aggrieved by the cancellation by the Revenue Commissioners of a certificate of authorisation may, by notice in writing, within 30 days of the date of cancellation, appeal to the Appeal Commissioners against this cancellation. Pending a decision by the Appeal Commissioners to reinstate the certificate of authorisation, it remains withdrawn.

(17B) Any subcontractor aggrieved by the imposition by the Revenue Commissioners of a limit on a relevant payments card may, by notice in writing, within 30 days of the date of the issue of the card, appeal to the Appeal Commissioners against the imposition of the limit. Pending a decision by the Appeal Commissioners in the matter, the limit is to remain in place

(18) The Appeal Commissioners are to hear and determine appeal under the section as if it were an appeal against an income tax assessment. All the provisions of the Income Tax Acts relating to such an appeal apply accordingly.

(19) On hearing of an appeal against a decision not to issue a certificate of authorisation or a decision to impose a cap on a relevant payments card (but not an appeal against the withdrawal of a certificate of authorisation), the Appeal Commissioners are to consider all such matters as were considered by the Revenue Commissioners in reaching their decision.

(20) The Revenue Commissioners may nominate any of their officers to act on their behalf at such an appeal or rehearing of such an appeal.

Relevant Date: Finance Act 2019