Relevant Contracts Tax (RCT) Explained: A Complete Guide for Bookkeeping and Contractors in Ireland

Relevant Contracts Tax (RCT) – Definition

RCT(Relevant Contracts Tax) in Bookkeeping

Relevant Contracts Tax (RCT) is a withholding tax applied in Ireland on certain payments made by principal contractors to subcontractors in specific industries, such as:

• Construction
• Forestry
• Meat processing

Under RCT rules, when a principal contractor pays a subcontractor for relevant work, they must deduct tax at a specified rate from the payment and remit it to Revenue (Irish Tax Authority) before paying the subcontractor.

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Why RCT Exists

The main purpose of RCT is to ensure tax compliance by subcontractors and prevent loss of tax revenue. It acts as a prepayment of income tax or corporation tax for the subcontractor.

RCT Rates

The RCT deduction rate depends on the subcontractor’s tax compliance history:

1. 0% Rate – Fully compliant subcontractors registered with Revenue.
2. 20% Rate – Subcontractors registered but with limited compliance history.
3. 35% Rate – Subcontractors who are unregistered or non-compliant.

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Examples of RCT in Practice

Example 1: 20% Rate

• Principal Contractor: ABC Builders Ltd
• Subcontractor: John Murphy Construction (20% RCT rate assigned by Revenue)
• Contract Amount: €10,000 (excluding VAT)

Process:

• ABC Builders notifies Revenue of payment details.
• Revenue confirms 20% rate for John Murphy.
• ABC Builders deducts €2,000 (20% of €10,000) and pays it to Revenue.
• ABC Builders pays John Murphy €8,000.

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Example 2: 0% Rate

• Principal Contractor: GreenForestry Ltd
• Subcontractor: OakWood Services (fully compliant – 0% RCT rate)
• Contract Amount: €5,000

Process:

• GreenForestry notifies Revenue.
• Revenue confirms 0% rate.
• GreenForestry pays the full €5,000 to OakWood with no deduction.

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Example 3: 35% Rate

• Principal Contractor: MeatWorks Ltd
• Subcontractor: QuickFix Repairs (unregistered – 35% rate)
• Contract Amount: €2,000

Process:

• MeatWorks notifies Revenue.
• Revenue confirms 35% rate.
• MeatWorks deducts €700 and pays it to Revenue.
• QuickFix receives €1,300.

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RCT Process Step-by-Step

1. Contract Notification

   • The principal contractor must notify Revenue before making a payment to the subcontractor.

   • This is done through Revenue Online Service (ROS).

2. Rate Determination

   • Revenue assigns the subcontractor’s RCT rate (0%, 20%, or 35%) based on their tax record.

3. Deduction & Payment

   • The principal contractor deducts the RCT amount from the subcontractor’s payment.

   • The deducted tax is sent to Revenue.

4. Payment Notification

   • The contractor submits a payment notification on ROS each time a payment is made.

5. Monthly/Quarterly Return

   • Contractors file a deduction summary for all RCT transactions within the reporting period.

6. Credit for Subcontractors

• The tax deducted is credited against the subcontractor’s income tax, corporation tax, or VAT liabilities.

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✅ Key Takeaways

• RCT applies to specific sectors in Ireland.

• The tax rate depends on the subcontractor’s compliance history.

• The system ensures that subcontractors pay the correct taxes on time.

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