Why Is My RCT Rate 20%? A Guide for Irish Subcontractors
Updated: Oct 1
You finish the job, send the invoice and expect the full payment to arrive in your account.
Instead, the amount you receive is lower than you expected.
If you're a subcontractor working in construction, forestry or meat processing, Relevant Contracts Tax (RCT) is likely the reason.
But what determines whether your RCT rate is 0%, 20% or 35%? And if your rate has increased, what can you do about it?
Key Takeaways
Your RCT rate is determined by Revenue, not by your contractor.
A 20% RCT rate does not mean the money is lost permanently.
Outstanding tax returns or compliance issues can affect your rate.
You may be able to request a rate review through ROS once issues are resolved.
A higher RCT rate can have a significant impact on cash flow.
Your RCT Rate Depends on Your Compliance Record
Your RCT rate is based on your tax compliance history with Revenue.
0% rate: Generally applies where your tax affairs are fully up to date.
20% rate: Generally applies where you are substantially compliant.
35% rate: Applies where there are significant compliance issues or where you are not registered with Revenue.
This means that two subcontractors carrying out exactly the same work could have different amounts deducted from their payments.
That's why it is important to know your RCT rate before pricing jobs and planning cash flow.
What Does 20% RCT Actually Mean? (And the VAT Rule You Need to Know)
Let's say you invoice a principal contractor €2,000 for a construction job and your RCT rate is 20%.
Where construction services are subject to RCT, the VAT reverse charge applies. You do not charge VAT on your invoice. Instead, the invoice should include the statement:
"VAT on this supply to be accounted for by the Principal Contractor"
The principal contractor accounts for the VAT in their own VAT return, and RCT is calculated on the amount excluding VAT.
This example applies to construction work. VAT treatment can differ for forestry and meat processing activities, so it is worth seeking advice if you are unsure about your circumstances.
When it comes to payment:
The contractor notifies Revenue of the payment before paying you.
Revenue issues a deduction authorisation showing the applicable RCT rate and deduction amount.
In this example, €400 is deducted and paid to Revenue on your behalf.
You receive a net payment of €1,600.
That €400 is not an extra tax or a penalty. Revenue credits it to your tax record and it is taken into account when your tax return is filed.
What Paperwork Should You Keep?
Contract Confirmation Letter
Once your principal contractor notifies Revenue of the contract, Revenue sends you a Contract Confirmation Letter.
This letter confirms important details about the contract, including your RCT rate.
Check the information carefully. If something is incorrect, ask the contractor to amend it. If the issue cannot be corrected, contact Revenue directly.
Deduction Authorisation
Where RCT has been deducted, your contractor should provide you with a copy of the Deduction Authorisation.
This document shows:
The gross payment
The RCT rate applied
The amount deducted
The net amount paid
Keep these documents safely. They provide the official record of RCT deducted from your payments.
Your RCT rate is determined by Revenue, not by your contractor. If the rate is higher than expected, the issue will generally need to be addressed through your tax compliance record and Revenue's review process.
Why Has My RCT Rate Increased?
Revenue carries out ongoing reviews of subcontractors' compliance records.
If your RCT rate changes, Revenue will notify you through your ROS inbox. You can also review the reasons through the RCT self-service options within ROS.
Common reasons for an increased rate include:
Outstanding tax returns
Late filings
Unpaid tax liabilities
Compliance issues identified by Revenue
The good news is that you do not necessarily have to wait for another automatic review.
Once the issue has been resolved, Revenue allows subcontractors to carry out a self-review of their RCT rate through ROS. Revenue advises waiting at least 72 hours after resolving the issue before submitting the review request.
Where the issue cannot be resolved through ROS, you can submit an enquiry through MyEnquiries, selecting the RCT category and rate review sub-category and explaining why you believe your rate should be reconsidered.
Don't Ignore the Cash Flow Impact
Although RCT is not an additional tax, a higher deduction rate can still put pressure on cash flow.
When 20% of a payment is deducted before it reaches your bank account, there is less money immediately available to cover day-to-day business costs.
This can make it more difficult to manage suppliers, materials, fuel, wages and other expenses, particularly where several payments are subject to RCT during the year.
It's important to understand your current RCT rate and plan accordingly.
Not Sure What RCT Rate Revenue Has on Record for You?
It is worth checking before your next payment arrives.
Many subcontractors only become aware of a rate issue after they notice a smaller payment landing in their account.
A quick review now could help avoid surprises and allow time to address any compliance issues before they affect your cash flow.
Where We Can Help
Most subcontractors do not fall behind on purpose.
You're busy running jobs, paperwork piles up, and checking ROS often falls to the bottom of the list.
If your RCT rate has increased, we can help identify the cause, bring outstanding filings up to date where necessary, and guide you through the rate review process.
Whether you're on a 0%, 20% or 35% RCT rate, understanding how Revenue determines your rate can help you avoid surprises and manage your cash flow more effectively.
If you'd like advice on your RCT position, get in touch with LedgerPlus Accountants.
Visit ledgerplus.ie/contact to speak with our team.
Comments