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Revenue eBrief No. 33/16 Increased compliance interventions in the construction sector – application of the Reverse Charge for VAT and other matters

As outlined in eBrief No. 77/15 (25 August 2015), Revenue has increased its focus on compliance risks in the Construction Sector. One particular compliance risk highlighted in that eBrief was the proper operation of the VAT Reverse Charge.

In the course of the programme of interventions carried out to date, it has become clear that the VAT Reverse Charge is not being applied properly in a number of cases. In addition, other matters have come to our attention during interventions which are referenced below:

VAT Reverse Charge for construction operations (excluding haulage)

Some of the issues being encountered include:

  • Failure on the part of the Principal contractor to self account for the VAT.
  • Incorrect completion of the VAT invoice/document by the Sub-contractor.
  • Application of the two thirds rule where the VAT Reverse Charge applies.
  • Completing the VAT 3 incorrectly (ignoring the reverse charge altogether).
  • Failure to apply the VAT Reverse Charge where there is a construction supply between connected parties.

As part of our ongoing programme of interventions in the construction sector, Revenue will be paying particular attention to how the VAT Reverse Charge is being operated. Penalties will be applied where appropriate.

The rules for Principal contractors and Sub-contractors involved in the construction industry and how they account for VAT are set out on the Revenue website.

Country Money

Payment of country money without deduction of PAYE/PRSI/USC is subject to strict criteria. Checks on the payment of country money are a feature of Revenue interventions in the sector. Employers and their agents should ensure that all payments of country money satisfy the relevant criteria.

Operation of Relevant Contracts Tax (RCT)

With the introduction of the eRCT system in 2012, Revenue now has access to real time data on activity in the sector. This data is used in our risk analysis systems to identify cases where RCT is not being operated correctly and this informs our selection of cases for intervention. Particular issues arise where contracts are not notified to Revenue and/or where payments are either not notified or are notified after the actual payment is made. Again, Principal contractors and their agents should ensure that where payments are made under a relevant contract, RCT is operated correctly on those payments.

Sub-contractors and Principals/Sub-contractors operating in the construction sector are reminded that failure to operate the VAT, PAYE or RCT requirements correctly will impact on their compliance history and may result in penalties being applied and/or their RCT deduction rate being increased.

Self-Review by Taxpayers

As is our normal practice, we strongly encourage self-review by those operating in the construction sector and recommend that Principals/Sub-contractors regularise their affairs before any Revenue compliance intervention begins.

Source: Revenue Commissioners. www.revenue.ie. Copyright Acknowledged.