Introducing a New Form RCT 1 for Principal and Subcontractors in the Construction, Meat Processing and Forestry Sectors

Before entering into a relevant contract, a principal and subcontractor must jointly complete a Form RCT 1 declaring that they have satisfied themselves that, in their opinion, the contract is not a contract of employment [Section 531 (6)(b)(i) and Regulation 3 Income Tax (Relevant Contracts) Regulations 2000].

Form RCT 1 has recently been revised in consultation and agreement with the Social Partners under the terms of the current partnership agreement Towards 2016-the Ten-Year Framework Social Partnership Agreement 2006–2015. Principals and subcontractors entering into relevant contracts on or after 1 April 2008 will be obliged to use a new Form RCT 1. This applies to both resident and non-resident contractors.

Main Changes to Form

The new Form is significantly different from the current version. The following summary covers the main changes:

• Principals and subcontractors are instructed to read the “Code of Practice for Determining Employment or Self-Employment Status of Individuals” before completing the Form. In conjunction with this, the ‘Contract Details’ page of the Form contains specific questions relating to the work of the subcontractor on the contract. This should help both parties gain a clear indication of the nature of the contract. See an updated version of the Code.
• Both the principal and the subcontractor must sign the Form on the three pages. In signing the declaration on page 1, both parties are confirming that:
1. The information they have provided is correct.
2. They have read and understand the “Code of Practice for Determining Employment or Self- Employment Status of Individuals”.
3. They have satisfied themselves that in their opinion, the contract they propose to enter into is not a contract of employment.
• It has four pages and includes notes on the tax obligations for resident and non-resident subcontractors.
• The subcontractor is obliged to provide specific information in relation to his/her registration for various taxes.
• A comparison of the entitlements and treatment of employees and self-employed individuals operating as subcontractors is provided.

There are penalties for not completing the Form, not retaining the Form or not sending it to Revenue when required. A fine of €1,265 may be imposed for each failure to meet these obligations.

Legislation

Section 31, Finance Act 2007 contained an enabling provision to allow Revenue introduce regulations requiring the Form RCT 1 to be returned to them in certain circumstances. It also extended the existing fixed penalties for failure to comply with the regulations on the completion of the Form RCT 1 to cover the failure to deliver the Form to Revenue.

Section 33, Finance Bill 2008 introduces a further enabling provision to allow Revenue to exclude a principal and subcontractor from the requirement to make an RCT 1 declaration, where one of them comes within a class or classes of persons to be specified in the regulations. The regulations are being prepared and further details, including the application for exemption process, will be issued shortly.

Requirement to Submit form to Revenue

The circumstances in which the form must be submitted to Revenue are listed below:

Automatic submission by the principal contractor

A principal contractor will be obliged to send the completed form to his/her Revenue District within 7 days of making the declaration, if any of the following exceptional circumstances apply:

• Where it is the first relevant contract entered into by the principal and subcontractor with each other.
• Where the subcontractor's PPS number (or tax reference number) or VAT registered number, as appropriate, are not provided, in circumstances where they should have been entered on the form.
• Where the subcontractor:
• is not registered for Income Tax or if a company, Corporation Tax.
• is not registered for VAT.
• will be employing others to carry out all or part of the contract and has not supplied an Employer Registered Number.
• intends to subcontract all or part of the contract to others and is not registered with Revenue as a principal contractor.

Submission on request by Revenue

Revenue may, by notice in writing, require a principal contractor to deliver the Form to them within 21 days from the date of the notice. The notice will specify the forms or categories of forms that are required to be delivered.

Informational Campaign

Every effort is being made to ensure that those directly involved in the RCT 1 process are notified of the changes to the Form. Copies of the new form, together with the updated “Code of Practice for Determining Employment or Self-Employment Status of Individuals”, are being issued to all contractors registered for RCT, as either a principal or subcontractor.

From 18 March 2008, supplies of the new Form will be available from www.revenue.ie, Revenue's Forms and Leaflets Service-LoCall 1890 306 706-and from local Revenue offices. Foreign language versions of the form and the updated Code of Practice for Determining Employment or Self-Employment Status of Individuals will also be available but for guidance only. Principals and subcontractors will be obliged to complete the English version of the new Form. The Form can also be completed on-line for printing locally, however, it is not yet possible to save the Form digitally.

Background information on the revised Form and procedures will be made available on the websites of Revenue, the Department of Social and Family Affairs, the National Employment Rights Authority (NERA), the Construction Industry Federation (CIF), the Irish Congress of Trade Unions (ICTU), the Irish Business & Employers Confederation (IBEC) and the Small Firms Association (SFA). The next editions of the Construction Industry Federation magazine and Tax Briefing will also contain articles on the Form.