RCT Tax Explained: The Construction Industry Guide

Relevant Contracts Tax (RCT) catches more Irish construction businesses than any other tax issue. It's not difficult conceptually, but the operational mechanics — checking each subcontractor's rate on every payment, remitting the deduction in time, reconciling at year-end — eat hours every month and the penalties for getting it wrong are eye-watering.

What is RCT?

RCT is a withholding mechanism. When a principal contractor pays a subcontractor for construction, forestry or meat-processing work, the principal deducts a percentage from the gross payment and remits it to Revenue. The subcontractor then offsets the withheld RCT against their own tax liability, or applies for a refund.

The three RCT rates

• 0% — subcontractors with good Revenue compliance and substantial trading history
• 20% — the default rate for new or moderately-compliant subcontractors
• 35% — applied where the subcontractor has compliance issues or no PPSN/tax registration

Revenue determines and updates the rate; the principal can't choose it. The principal must check the rate via ROS on every payment — not annually, not quarterly, but every time money changes hands. A subbie can shift from 0% to 35% overnight if their tax compliance lapses.

Are you a principal contractor?

You're a principal if you:

• Are engaged in construction operations and pay another person to carry out construction work for you, or
• Are a public body, local authority or specified state body, or
• Engaged in property development for sale and pay another to construct

You can be both a principal and a subcontractor on the same project — for example, a main contractor pays you as a subbie, and you in turn pay your own subbies as a principal. The RCT obligation flows separately on each leg.

The principal's monthly cycle

1. Before paying a subbie, log into ROS and notify Revenue of the contract
2. For each payment, request a "Deduction Authorisation" — Revenue returns the rate (0/20/35%)
3. Deduct the appropriate amount from the gross payment
4. Pay the subbie the net amount
5. By the 23rd of the following month, remit all RCT deducted to Revenue
6. Issue the subbie a "Deduction Summary" so they have proof of the withholding

RCT and reverse-charge VAT — the dance

Between principal and subcontractor on most construction services, reverse-charge VAT applies: the subbie invoices VAT-exclusive, and the principal accounts for both the output and input VAT (in most cases netting to zero). RCT is calculated on the VAT-exclusive amount. So a €10,000 invoice from a 20%-rate subbie:

The five most expensive RCT mistakes

1. Treating a subbie as 0% because they were 0% last month. Always re-check via ROS. A change to 35% on an unchecked payment hits the principal for 35% of the gross, not the subbie.
2. Paying a subbie cash without an RCT contract on ROS. Revenue treats the entire gross payment as if 35% should have been deducted.
3. Missing the 23rd-of-month remittance deadline. Interest accrues plus surcharges.
4. Classifying a worker as a subcontractor when they should be an employee. The "control test" applies — Revenue reclassifies and you pay backdated PAYE, PRSI and USC plus interest.
5. Not deducting RCT on materials sold-with-labour. If a "subbie" supplies labour-only plus materials, RCT applies to the whole; if pure-supply, materials are outside RCT scope but VAT still applies.

If you're a subcontractor

• Apply via ROS for a tax-compliance check to confirm your rate. Aim for 0% — it dramatically improves cash flow.
• Keep every Deduction Summary; you'll need them to claim credit on your CT1 or Form 11.
• If you've been over-deducted (high rate when you should have been low), apply for a refund via ROS — don't wait until year-end.

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