Relevant Contracts Tax (RCT) in Ireland: A Plain-English Guide for Construction Businesses

If you work in construction, you will deal with relevant contracts tax sooner or later. It decides how much of each payment a subcontractor actually receives, and it puts real obligations on the business paying them.

Most guides on RCT Ireland are written either for main contractors or for tax advisers. This one covers both sides in plain English, and adds the part most guides skip: how RCT should show up in your books.

What is relevant contracts tax (RCT)?

In short, the answer to what is RCT is a withholding tax on certain payments made by principal contractors to subcontractors in three sectors: construction, forestry and meat processing.

It applies when three things are true:

• the work is a relevant operation, such as building, alteration, repair or extension work and related site work
• there is a contract between a principal contractor and a subcontractor for that work, or to supply labour for it
• the person paying is a principal contractor

A private householder hiring a builder to work on their own home is not a principal contractor, so RCT doesn't apply there.

Principal contractor or subcontractor?

You are a principal contractor if you use a subcontractor to carry out relevant work on behalf of your business. Some public bodies, such as local authorities and Government Ministers, are principals too.

Many construction companies are both at once. A builder hired by a developer is a subcontractor on that job, and becomes a principal when they hire a plasterer or electrician. Each role carries its own duties.

RCT covers contracts for services. If the person working for you is an employee, you run payroll instead.

RCT rates: 0%, 20% and 35%

The RCT tax rate is set by Revenue for each subcontractor, based on their tax compliance record:

• 0% for subcontractors with an up-to-date compliance record
• 20% for those whose record is substantially up to date
• 35% for those with a poor compliance record, or who are not registered with Revenue

The rate isn't chosen by the principal. It appears on the deduction authorisation Revenue issues for each payment. If a subcontractor fixes a compliance issue, they can self-review their rate in ROS, but Revenue asks them to allow at least 72 hours after resolving it.

How eRCT works step by step

All RCT filing and payment runs through ROS, so the principal needs a ROS registration. Our tax registration service can help get the company registered.

The RCT Revenue process for a principal follows the same sequence every time:

1. 1Register as a principal contractor with Revenue. This is how to register for RCT in Ireland as a principal.
2. 2Contract notification. Notify Revenue immediately after entering into a relevant contract. Check and keep proof of the subcontractor's identity first.
3. 3Payment notification. Before paying the subcontractor, notify Revenue of the gross amount and payment date.
4. 4Deduction authorisation. Revenue sends this to your ROS inbox, showing how much tax to deduct. Give a copy to the subcontractor.
5. 5Deduction summary. At the end of each monthly or quarterly return period, ROS builds a summary of your deductions. You can amend it before the 23rd.
6. 6Pay Revenue the tax deducted by the 23rd of the month after the return period.

Getting it wrong: penalties

A payment made other than as shown on a deduction authorisation is an unreported payment. Each one carries a penalty based on the subcontractor's rate:

Revenue sends the penalty notice to your ROS inbox. If it isn't paid, Revenue issues a Notice of Opinion, and a court decides the matter if you dispute it. The principal is the one who carries this risk.

RCT in your books

This is where a lot of small construction companies get caught out.

• No VAT on subcontractor invoices. Construction services supplied to a principal contractor fall under the VAT reverse charge. The subcontractor invoices without VAT, and the principal accounts for the VAT in its own VAT return. Our guide to your first VAT return shows where that entry goes.
• Record the gross figure. As a subcontractor, record the full invoice value as income and the RCT deducted as a tax credit, not as a cost.
• Use your credits. Revenue credits your tax record with the RCT a principal deducted. The credit is offset against your other liabilities, such as PAYE, VAT, Corporation Tax or Income Tax, once you file the matching return. This is how to claim back RCT tax Ireland subcontractors rely on most.
• Reconcile monthly. Match each deduction authorisation to the payment received and to Revenue's records. Missing credits are much easier to chase while the job is fresh.

Good bookkeeping for construction businesses keeps all of this tied together, especially when you are both a principal and a subcontractor.

Frequently Asked Questions

Run your construction business on solid books

We help trades and construction companies keep RCT tax credits, VAT and payroll in order every month. If you are a sole trader subcontractor thinking about switching from sole trader to limited company, click here to price your new construction company.