Relevant Contracts Tax (RCT) – Clarification about Claiming Offsets/ Repayments

Section 531(5) of the TCA 1997 provides that where a subcontractor has suffered an RCT deduction from a payment made to him or her by a principal contractor, the deducted tax is to be treated as a payment on account of the sub-contractor's liability to tax on trading profits (being the trade in respect of which the payment giving rise to the deduction was made) for the appropriate chargeable period.

Where the amount of RCT deducted is in excess of the sub-contractor's tax liability in respect of his/her trade and any other Income or Corporation Tax liability, VAT, CGT, etc., the excess may be repaid to the subcontractor so long as the claim for repayment is made within 4 years of the end of the chargeable period to which the claim relates.

However, where the sub-contractor submits the Form RCTDC outside the 4-year time limit for repayments, he/she is entitled to have the tax contained in the RCTDC taken into account and credited only against any outstanding tax liability on trading profits (from the trade which gave rise to the deduction) for the particular chargeable period. The sub-contractor will not be entitled to an offset against any other tax liability or to secure a repayment in respect of any balance remaining in the RCTDC.

An article with more detailed information on this matter will be included in the next issue of the Tax Briefing magazine.