As you may be aware, the Charities (Amendment) Bill 2022 is with the Oireachtas to be passed into legislation. Upon the passing of this bill, this will bring significant changes to the Charities’ Act 2009.
The bill will make Charities SORP (FRS 102) mandatory for organisations who meet certain thresholds.
The proposed thresholds are as follows:
The updated legislation will apply to all registered charities in Ireland. Please note the following:
There is an understanding that the exemption in place regarding educational bodies will remain, however university foundations will no longer be exempt.
It is also expected that a charity will be able to prepare in accordance with another industry wide recommended practice e.g. Housing SORP.
The Bill is expected to pass by the end of 2023 with the expected applicable dates to be accounting periods starting 01 January 2025. This will mean mandatory Charities SORP will be applicable for year ends 31 December 2025.
What steps should I take now?
As SORP will require two years of comparative figures with the breakdown of figures between restricted / unrestricted, you should ensure that from the 2024 accounting period, the information recorded in the accounts package is posted in line with SORP or presented in the SORP format in charities management accounts. This information will be essential for the annual audit.
A working should be prepared to ensure reserves are split between restricted and unrestricted as appropriate.
Ensure your current accounts package is adequate for the needs of Charities SORP postings.
Attend any webinars available over the coming months hosted to help you become familiar with the legislation and requirements.
While your organisation may be already preparing the financial statements in accordance with Charities SORP, you may need to review available resources to ensure FULL compliance is being met once Charities SORP is introduced.
Please contact Elaine Murphy, Assistant Manager in our Audit & Assurance department if you have any queries regarding the migration to SORP.
Disclaimer: The information contained above is accurate at the time of publication and as the Bill has not been fully published, the information is subject to final changes.
In May of this year, the Government approved the updated 2023 Public Sector Climate Action Mandate (PSCAM). The Mandate, first introduced as part of the Climate Action Plan (CAP) 2021, sets out the goals Public Sector Bodies must achieve as part of the government’s overall strategy for reducing emissions. The newly updated Mandate is an expansion of the 2022 Mandate. New actions have been added and existing actions have been expanded. This article will talk through the updated Mandate, explain its purpose and describe the new requirements it presents.
What is the Mandate?
The CAP’s overall aim is to achieve a 51% reduction in greenhouse gas emissions in Ireland by 2030. While the CAP acknowledges that the public sector is not the major driver of emissions, the Mandate has been introduced to facilitate the public sector in taking a leading role in reducing emissions. The Mandate must be followed for those bodies it applies to, but it should be noted that it does not apply to every public sector body. Local Authorities, Commercial Semi-State Agencies and Schools are all exempt from the Mandate. Size is also a consideration when adhering to the Mandate. The Mandate places greater responsibilities on government departments and also on organisations that consume over 50 GWh of energy per annum than it does on smaller bodies, which can fulfil the Mandate’s minimum requirements.
Status of the 2022 Mandate
For those public bodies the Mandate does apply to, many of the requirements found in the updated Mandate are unchanged from previous years. For instance, the requirement to establish and support Green Teams has not been altered. Furthermore, nothing has been removed from the Mandate. This means that any work completed to fulfil the previous Mandate remains valid. Any organisation still working on fulfilling the previous Mandate can continue to use the guides made available by the Sustainable Energy Authority of Ireland. We anticipate that updated guidelines will be made available for the new Mandate, however, no timeline for this is available so far.
Changes from the 2022 Mandate
For those who are subject to the Mandate, the following are the major changes to be aware of:
A new requirement has been added stating that senior management complete a climate action leadership training course in 2023.
The requirement that sustainability and emissions be addressed in the annual report has been amended. The annual report must now also address: a) efforts to implement the Mandate; b) compliance with Circular 1/2020 related to air travel emissions.
The requirement to review use of paper has been amended to include the need to eliminate paper-based processes and, where this is not possible, to use recycled paper as the default.
The requirement to achieve formal environmental certification has been amended with distinct requirements for organisations spending more or less than €2m per annum on energy.
A requirement to implement Green Public Procurement (GPP) has been added. This should be performed in line with the EPA Green Public Procurement Guidance.
The requirement to create bicycle friendly buildings has been amended to indicate that the priority should be to facilitate moving away from individual car use.
A new requirement to phase out the use of parking in buildings, without compromising on supports for those with physical mobility issues, has been added.
New recommendations for retrofitting large building have been added.
The requirement to procure zero-emission vehicles only has been amended to include a requirement that any procurement contracts a public sector body enters into should use zero emissions vehicles whenever possible.
Contributors
Vincent Teo Partner & Head of Public Sector & Government Services
https://www.crowleysdfk.ie/wp-content/uploads/shutterstock_2235932383-scaled.jpg14402560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2023-06-06 07:45:222023-06-06 07:45:22Public Sector Climate Action Mandate 2023 – What you need to know
Non-resident landlords may have received a letter from Revenue advising of upcoming changes to the administration of withholding tax for non-resident landlords. Up to now, non-resident landlords had two options to report rental profits to Revenue:
Non-resident landlords asked their tenant to withhold 20% of the rent and to pay this to Revenue on their tenant’s personal income tax return. The tenant should have given the non-resident landlord a Form R185 (certificate of income tax deducted) so that a credit could be claimed for the tax deducted when submitting a personal income tax return.
Non-resident landlords appointed a Collection Agent, who registered for Income Tax on their behalf using a Collection Agent Income Tax Registration Form. Their Collection Agent was responsible for reporting the non-resident landlord’s rental profit for the year by filing an income tax return and paying any liability to Revenue on behalf of the non-resident landlord.
What are the upcoming changes?
A new Non-Resident Landlord Withholding Tax system is expected to go live from 1 July 2023 which will see changes to the obligations of tenants, collection agents and non-resident landlords.
Tenants will be required to withhold and pay to Revenue 20% of the rent by making a rental notification through the new withholding tax platform. They will not be responsible for paying the 20% tax deducted on their personal income tax return.
Collection Agents will no longer be responsible for filing an income tax return. A Collection Agent will be required to withhold and pay to Revenue 20% of the rent by making a rental notification through the new withholding tax platform.
Non-Resident Landlords will be responsible for filing their personal income tax returns. A credit will be allowed for the tax withheld in the new system.
What actions are required by non-resident landlords?
If you are a non-resident landlord whose tenants already withhold 20% of the rent or if you have appointed a Collection Agent, there are no actions required by you at this time. Further information will be released by Revenue shortly and a new Tax and Duty Manual will be published in due course.
All other non-resident landlords must now decide whether they want their tenants or a collection agent to withhold and pay to Revenue 20% of the rent under the new Non-Resident Landlord Withholding Tax system and take action accordingly.
Please contact us if you have further queries on this.
A new Vacant Homes Tax (VHT) was introduced in Budget 2023. The primary objective of this is to increase the availability of housing, but landlords need to be aware of the restrictions on allowable pre-letting expenses when calculating their rental profits.
Vacant Homes Tax (VHT)
VHT applies to residential properties which have been occupied for less than 30 days in a chargeable period.
VHT is calculated at three times the residential property’s local property tax (LPT) liability.
The following will be exempt from the VHT:
Properties recently sold or listed for sale or rent.
Properties vacant due to illness or long-term care of the occupier.
Properties which were the principal residence of a deceased chargeable person in either the chargeable period or in the 12-month period prior to the commencement of the chargeable period.
Properties which were the principal residence of a deceased chargeable person where a grant to administer the estate issues in the chargeable period and for any chargeable period following such a grant, where the administration of the estate has not yet completed.
Properties which are vacant due to significant refurbishment work.
The first chargeable period runs from 1 November 2022 to 31 October 2023.
A VHT return will be due by 7 November 2023, with the tax payable by 1 January 2024.
Pre-Letting Expenses
In determining the taxable rental profits from the letting of residential property, a landlord may claim a deduction for the following expenses:
Costs not repaid by tenant – e.g., light & heat costs.
Capital allowances on qualifying capital items – e.g., furniture, white goods.
However, with the exception of property-related fees such as letting or legal fees incurred on the first letting, a deduction is not permitted for expenses incurred prior to the first letting of the property.
The Finance Act 2017 sought to address the above and introduced an allowable deduction of up to €5,000 for certain pre-letting expenses incurred on vacant residential properties. From 1 January 2023, this cap on the authorised deduction has been increased to €10,000 and the specified period for which the property was vacant has been reduced from twelve to six months. The landlord must incur the expenditure during the twelve months prior to first letting the property.
If the landlord ceases to let the property within four years, the deduction for the pre-letting expenses will be clawed back in the year in which the property ceases to be let as a residential property. Importantly, a clawback will be triggered if there is a change of use from residential or if the property is sold.
If you need any assistance with VHT or Pre-Letting Expenses, please contact Niall Grant, Partner in our Tax Services’ Department.
Do you have property in the UK, or are you about to acquire or have you recently sold property there? If so, you must comply with new anti-money laundering legislation for UK properties.
On 1 August 2022, the new Register of Overseas Entities, came into effect through the Economic Crime (Transparency and Enforcement) Act 2022.
Any overseas entity that wants to buy, sell, or transfer property or land in the UK, must register with the UK Companies House and declare the identity of their beneficial owners or managing officers before 31 January 2023.
Overseas entities that disposed of property or land since 28 February 2022 (when legislation for the register was first announced) are required to provide a statement to Companies House.
The register applies to property acquired in:
England and Wales since 1 January 1999;
Scotland since 8 December 2014; and
Northern Ireland since 1 August 2022.
Failure to comply with these new obligations is a criminal offence and will lead to fines of up to £2,500 per day or a prison sentence of up to 5 years.
For further information, please Emma Dunne, Assistant Manager of Corporate Compliance.
https://www.crowleysdfk.ie/wp-content/uploads/shutterstock_591493334-scaled.jpg17062560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2022-09-14 08:01:362023-06-29 09:50:59New Obligations for Overseas Entities with UK Properties
Our previous article on RCT and VAT pitfalls for non-resident contractors provided a general overview of the RCT regime in Ireland. We will now look at a case study analysis of RCT and VAT treatment and explore scenarios in which we have observed mistakes commonly being made among taxpayers.
1. Supply of Labour for Relevant Operations
We have observed cases whereby contractors in the construction industry, particularly non-resident contractors, engage recruitment firms to supply labour to carry out construction operations on a site in Ireland.
While it is commonly interpreted that RCT only applies to construction operations, in fact the definition of “relevant operations” extends to both the carrying out of and the supply of labour for the performance of, relevant operations in the construction industry.
Case Study – Example 1
Company A (based in Spain) is engaged by Company B (based in Ireland) to carry out demolition works on a number of properties in Ireland. Company A, in turn, engages Company C (a recruitment firm based in the UK) to provide the personnel required to complete the demolition works in Ireland.
RCT Obligations
Company B is a Principal Contractor in respect of these works and is required to operate RCT on the payments made to Company A. This brings Company A within the scope of RCT as it is regarded as a Subcontractor carrying out construction operations in Ireland.
Whilst Company A is a subcontractor in respect of its engagement with Company B, Company A is also a Principal Contractor in respect of its engagement with Company C. Company A will be required to operate RCT on the payments made to Company C because Company C has arranged the supply of labour for the performance of the demolition works on the sites in Ireland.
This brings Company C, the non-resident recruitment firm, within the scope of RCT, as it is regarded as a Subcontractor carrying out construction operations in Ireland.
In this example, Company B must register for RCT as a Principal Contractor, Company A must register for RCT as both a Principal Contractor and a Subcontractor, and Company C must register for RCT as Subcontractor.
VAT Obligations
The provision of the services by Company C to Company A and Company A to Company B falls within a reverse charge provision for the supply of labour and construction services, which is subject to RCT.
Company C, as a Subcontractor, does not have an output VAT liability in respect of the provision of services provided to Company A. As such, Company C will issue its invoices to Company A with no VAT charge.
Company A, as a Principal Contractor, must self-account for VAT on a reverse charge basis (typically at 13.5%) on receipt of the invoices from Company C. Company A should have an entitlement to a simultaneous VAT input credit as it has used the services to make taxable supplies to Company B.
Company A, as a Subcontractor, does not have an output VAT liability in respect of the provision of the services provided to Company B. As such, Company A will issue its invoices to Company B with no VAT charge.
Company B, as a Principal Contractor, must self-account for VAT on a reverse charge basis (typically at 13.5%) on receipt of the invoices from Company A. Company B should have an entitlement to a simultaneous VAT input credit as it has used the services to make taxable supplies to Company B.
In this example, only Company A and Company B are required to register for Irish VAT. Only Principal Contractors are required to account for VAT on the receipt of construction services that fall within the RCT regime.
Company C is not required to register for VAT in respect of its supplies to Company A.
2. Mixed Contracts
A major risk with the definition of a relevant contract arises for contracts that cover both RCT-type and non-RCT-type supplies.
Case Study – Example 2
Company A engages Company B to carry out repair and maintenance works on a number of properties in Ireland.
Is the contract liable to RCT?
The definition of “construction operations” includes contracts for repair work which is interpreted as the replacement of constituent parts i.e., the repair of a broken window by installing a new pane of glass, mending a faulty boiler etc.
However, the definition of “construction operations” specifically excludes maintenance work i.e., cleaning, unblocking of drains etc.
In this example, Company A and Company B have entered into a repair and maintenance contract. This is referred to as a mixed contract. Revenue’s view on mixed contracts is that if any part of a contract includes “relevant operations” then the contract as a whole is considered a relevant contract and all payments under that contract are liable to RCT.
As Company A and Company B have entered into a mixed contract, the contract as a whole, is considered a relevant contract, and all payments made by Company A to Company B are liable to RCT.
This treatment applies even where no repairs are actually carried out by Company B in completing a particular job under the contract.
In this example, Company A must register for RCT as a Principal Contractor and Company B must register for RCT as a Subcontractor.
A common pitfall we see in this area is for a company to raise separate invoices for the maintenance work and the repair work. They then only treat the invoice for the repairs as being subject to RCT. This is incorrect as it is the overall contract, not the elements being invoiced, that governs whether RCT should be applied or not.
However, if there are separate contracts, one covering maintenance and one covering repairs, then only the contract covering the repairs is subject to RCT.
3. VAT Reverse Charge
VAT is normally charged by the person supplying the goods or services. However, under the RCT regime, the person receiving the goods or services (i.e., the Principal Contractor) accounts for VAT as if they had supplied the service and pays it directly to Revenue. This is known as the VAT Reverse Charge.
We commonly see the VAT Reverse Charge being applied incorrectly in cases where a subcontractor supplies goods or services, other than construction services, as part of the overall contract.
Contractors must be aware that while the overall contract may fall within the RCT regime, that does not mean that the VAT Reverse Charge applies to all goods or services invoiced under that contract.
Case Study – Example 3
The facts are the same as in Example 2. See below for reference:
Company A engages Company B to carry out repair and maintenance works on a number of properties in Ireland.
In this case the repair and maintenance contract in place between the parties provides that a separate charge will apply where repairs are carried out.
Company B has now completed repair and maintenance works for Company A and is looking to raise a sales invoice to Company A for the following:
Repair Works – €4,500 (exclusive of VAT)
Maintenance Works – €10,000 (exclusive of VAT)
VAT Obligations
Generally, the VAT Reverse Charge only applies to payments that are in respect of construction operations which in this case, are the repair works.
Company B must therefore issue two VAT invoices as follows:
An invoice for the repair works of €4,500 on which the VAT Reverse Charge applies. Company A will be required to self-account for VAT at 13.5% on the receipt of this invoice from Company B.
An invoice for the maintenance works (i.e., not considered a construction service) of €10,000 on which VAT at the 13.5% rate is applied. Company A will be required to pay Company B the total invoice value including VAT amounting to €11,350.
RCT Obligations
As set out in Example 2, where a contract is for repair and maintenance, RCT applies to all payments under the contract.
As such, Company A is required to notify the total payment to Revenue. This should include the VAT exclusive payment for the repair works plus the VAT inclusive payment for the maintenance works. Assuming for the purposes of this example that only one payment is to be made by Company A to Company B for the works, Company A would file a Payment Notification with Revenue as follows:
Repair Works (VAT Exclusive) – €4,500
Maintenance Works (VAT Inclusive) – €11,350
Total Payment Reported to Revenue – €15,850
It is important to note that if a repair and maintenance contract provides for a single consideration for all works completed under the contract, then the VAT Reverse Charge must be applied to the full consideration.
Should you require any assistance in this area, please contact us.
https://www.crowleysdfk.ie/wp-content/uploads/pexels-pixabay-532079-scaled.jpg17032560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2022-08-17 08:48:542023-06-29 09:51:22RCT & VAT Pitfalls in the Construction Industry | Case Study Analysis
Passing on your business and developing your exit strategy is one of the most important business decisions you will ever have to make.
Many of the tax reliefs one may wish to claim on a transfer of assets can be subject to very stringent conditions, such as minimum periods of ownership or active involvement in the business. Succession planning can often seem like something which should be considered close to retirement. However, the risk of waiting is that many of the key tax reliefs available to business owners are not accessible when the time comes to pass on assets, as the relevant conditions cannot be met.
What can help avoid this problem is advance planning. Through preparation, a business owner can identify some of the key conditions required to avail of certain tax reliefs, allowing them sufficient time to take the necessary steps to qualify for these reliefs. Therefore, it is not unusual to see a succession plan being put in place 5 to 10 years prior to its implementation.
The transfer of a business can trigger several taxes such as:
Capital Gains Tax (CGT) which is a tax payable by the person selling or transferring an asset. The current rate of CGT is 33%.
Capital Acquisitions Tax (CAT) which is a tax payable by the person in receipt of a gift or inheritance. The current rate of CAT is 33%.
This article will focus on the key tax reliefs available to business owners and their family members on the transfer of their business.
CGT Reliefs
In order to mitigate or eliminate the CGT liability on the transfer, there are two main reliefs which may be availed of provided certain conditions are met. These are:
Retirement Relief
Entrepreneur Relief
Retirement relief provides for relief from CGT on the disposal of qualifying assets.
To qualify for this relief, the main conditions are that the individual must be aged 55 or over and must be disposing of or transferring qualifying business assets. In addition, the individual must have been a working director of the company for 10 years and a fulltime working director for at least 5 of the years prior to the transfer. The latter condition can be a stumbling block for many individuals seeking to claim this relief. For example, an individual may be a director of more than one company and therefore may not meet the full-time working director requirement. This is why it is so important to prepare a succession plan early in your lifetime.
If retirement relief is not available, the individual may qualify for RevisedEntrepreneur Relief which limits the rate of CGT to 10% on the first €1m of gains on the disposal of certain business assets. In contrast to retirement relief, this relief has no age requirement and the individual can qualify for it at any stage provided the relevant criteria is met. To qualify for the relief, the individual should have owned the shares in the business for a continuous period of 3 of the last 5 years and spent 50% or more of their working time as an employee or director of the company.
CAT Reliefs
An individual can receive gifts/inheritances up to a certain amount tax-free throughout their lifetime. Currently, a child can receive a gift or an inheritance up to €335K from his/her parents.
In the context of a business, a child may, on receipt of a relevant business property, qualify for what’s known as Business Relief. This reduces the value of the gift or inheritance being received to 10% of the market value of the business property, resulting in a significant tax saving. Similar to the reliefs already discussed, there are certain conditions that need to be met around ownership and the level of involvement in the business.
Farmers may qualify for Agricultural Relief on the receipt of a gift or inheritance of agricultural property. Agricultural property includes agricultural land, crops and trees growing thereon and farm buildings appropriate to the property. By qualifying for this relief, the market value of the property being received will be reduced by 90%. This makes it a very valuable relief.
There are two tests that need to be passed before a person can avail of the relief:
The farmer test requires 80% of the beneficiary’s assets to be agricultural property immediately after receipt of the inheritance.
The trading test requires the individual to farm the land themselves for at least 6 years or alternatively lease the land out to a qualifying farmer for 6 years.
If a CAT liability arises with or without claiming any of the CAT reliefs, it may be possible to reduce or eliminate the liability by claiming a credit for the CGT paid by the parent on the transfer of property.
Although there are many commercial considerations to be made when passing on wealth as well as discussions with family members as to suitable successors, tax plays a key role in informing the business owner as to the extent of any tax liability. Knowing this information prior to implementing a succession plan enables the owner to make more informed decisions and allows for maximising the amount of reliefs that may be claimed. This will reduce the overall tax costs of the transfer.
For more information on tax reliefs related to your exit strategy, please contact us.
https://www.crowleysdfk.ie/wp-content/uploads/Succession-Planning-1-scaled.jpg16512560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2022-05-31 08:05:522023-06-29 09:52:51Exit Strategy: How to Pass your Business on to the Next Generation
DFK International has been ranked as the 6th largest association in the world in the International Accounting Bulletin’s (IAB’s) annual 2022 World Survey Report.
Crowleys DFK has been a proud member of DFK International for twenty-nine years.
The report is based on collective fee income, with DFK International members firms achieving a turnover of $1.532 billion.
DFK has sat in seventh place for 10 years but has moved up the list after achieving a growth rate of 3% compared to the previous year.
The association now has 230 member firms, 1,413 partners, 13,919 staff members and 455 offices in 94 countries.
Martin Sharp, executive director of DFK International, said:
“We are very proud to be among the leading associations worldwide.
Moving up to sixth place demonstrates that despite the pandemic, DFK remains one of the strongest associations in the world and our member firms have continued to grow, which is a fantastic achievement.
We have seen growth across all services lines, particularly in North America, which shows that our members have continued to provide outstanding support to their clients in a challenging environment and in-turn have expanded their practices.
We now look forward to another successful year as we continue to do business and share knowledge and best practice to achieve further growth.”
Being a part of an association with a strong global presence has greatly widened Crowleys DFK’s intellectual resources, allowing us to offer local advice supported by a broader knowledge of international financial reporting.
This breadth of knowledge is a critical resource for our clients, which include leading firms in industries such as information and communications technology, e-commerce, life sciences, manufacturing and consumer products.
These clients find that our expert team provides fundamental advice on structuring their Irish operations, on securing Government funding, and dealing with tax and legal obligations.
As Ireland continues to be a vital hub for international business, our understanding of the challenges faced by companies moving into Ireland will continue to be a critical resource.
Eddie Murphy, Head of Tax and FDI Services at Crowleys DFK, said:
“At Crowleys DFK, we understand the challenges faced by our SME and owner-managed business clients. We are proud of the reputation and long-term relationships we have built with them over the years.
Whether it’s getting advice on taking on two employees in Germany, accessing capital markets in London or New York or helping technology companies expand into San Francisco, we connect our clients with trusted professionals throughout the world.
In many cases our clients prefer to deal with us and in these instances, we instruct the other DFK firms. This means clients can concentrate on their business and don’t need to spend time developing new relationships abroad.”
To learn more about DFK International visit www.dfk.com.
https://www.crowleysdfk.ie/wp-content/uploads/09acd302-f307-745e-2ebc-063c283b6ea3.png12401748Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2022-04-12 15:10:152023-06-29 09:53:35DFK International Ranked 6th Largest Association in the World
An area that has continued to cause challenges and risks for businesses is the operation of Relevant Contracts Tax (RCT) and VAT.
The most common mistakes we see being made in this sector are by non-resident principal contractors who engage a subcontractor to carry out construction works in Ireland.
This article will focus on the most common pitfalls that we see occurring within this sector by non-resident principal contractors and the steps that can be taken to avoid making costly mistakes.
1. Compliance Obligations for Non-Resident Principal Contractors
When a non-resident principal contractor engages a subcontractor to carry out construction works in Ireland, the RCT system must be applied to payments made to the subcontractor.
The first potential pitfall for a non-resident principal contractor is not taking the reasonable care to familiarise themselves with their tax obligations under the RCT regime. In such a case, the non-resident principal contractor will eventually be contacted by Revenue, informing them of their failure to operate the RCT regime. This usually occurs following the commencement of the works in Ireland, at which point the mistakes have already been made and costly penalties can be imposed by Revenue.
As such, it is very important that a non-resident principal contractor is aware of their tax obligations prior to the commencement of any construction works in Ireland so that the necessary administrative steps can be taken to ensure that they are set up for the RCT system and fully compliant in operating RCT on payments to subcontractors.
The administrative steps to be taken by a non-resident principal contractor include registering for RCT on Revenue’s Online Service (ROS) and operating the RCT regime throughout the duration of the project in Ireland (further detail on this below).
2. Operation of the RCT System
Once a principal contractor is registered for RCT with Revenue, there are a number of steps that must be taken each time a principal contractor enters into a relevant contract with a subcontractor and each time a payment is made to the subcontractor. These steps are summarised as follows:
a. Contract Notification
The first step is to input a “Contract Notification” through Revenue’s online RCT system. A principal contractor must notify Revenue each time it enters into a new relevant contract with a subcontractor. The Principal will then receive a contract reference number and an indication of the applicable RCT deduction rate for the subcontractor.
b. Payment Notification
Before making a payment to a subcontractor, the principal must notify Revenue’s online eRCT system of the intention to make the payment and provide details to Revenue of the gross amount to be paid. This process is known as “Payment Notification”. This must be done for each payment made to the subcontractor.
c. Deduction Authorisation
Revenue will issue a deduction authorisation to the principle contractor which will specify the rate and amount of tax to be deducted from the payment to the subcontractor. This process is known as “Deduction Authorisation”. The principle is required to provide a copy of this authorisation to the subcontractor.
d. Deduction Summary (RCT Return)
Revenue’s eRCT system prepares a pre-populated period end return known as a “Deduction Summary (i.e. RCT Return)”, which is based on the deduction authorisations issued during the period. The due date for payment of the RCT withheld is the 23rd day after the end of the period covered by the return.
The most common pitfall we see occurring in practice are inconsistencies in notifying Revenue of each and every payment made to a subcontractor by the principal contractor. This can be a costly mistake for the principal contractor as the penalties Revenue can impose for failure to operate the RCT system in this way range between 3% to 35%, depending on the RCT deduction rate applicable to the subcontractor.
To put this into perspective, if a subcontractor has been assigned a 35% RCT deduction rate and the principal contractor makes a payment of €25,000 to the subcontractor without first notifying Revenue of the payment and deducting the appropiate withholding tax, Revenue can impose a penalty of €8,750 (i.e. 35% of the invoice value) on the principal contractor for its failure to operate the RCT system.
These penalties can become very costly for a business where they fail to operate the RCT system on high value invoices.
3. Operation of RCT and Reverse Charge VAT
Typically, VAT is normally charged by the person supplying the goods or services. However, under the RCT regime, the person receiving the goods or services (the principal contractor) calculates the VAT due on the invoice from the subcontractor and pays it directly to Revenue. This is referred to as Reverse Charge VAT and it is common area in which mistakes are made by non-resident principal contractors.
The following should occur when a subcontractor invoices a principal contractor for construction services that are subject to RCT:
The subcontractor raises an VAT invoice with the zero rate of VAT applied;
The invoice should include the VAT registration number of the principal contractor and include the narrative “VAT on this supply to be accounted for by the principal contractor”;
The principal contractor calculates the VAT due on the invoice value and records it as VAT on sales (Box T1) on its VAT return. Where it is entitled to do so, the principal contractor can claim a simultaneous VAT input credit (Box T2) on the VAT return, thus resulting in a VAT neutral position.
Although the RCT system can seem like a heavy administrative burden on a business, it can be managed relatively smoothly with the proper administration. Our tax specialists look after all administrative issues regarding RCT, provide effective advice and answer questions you may have regarding RCT.
Should you require any assistance, please contact us.
https://www.crowleysdfk.ie/wp-content/uploads/shutterstock_524031511-scaled.jpg17072560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2022-03-30 09:02:492023-06-29 09:54:02A Guide to Avoiding the Most Common RCT & VAT Pitfalls for Non-Resident Principal Contractors
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Do you have property in the UK, or are you about to acquire or have you recently sold property there? If so, you must comply with new anti-money laundering legislation for UK properties.
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DFK International has been ranked as the 6th largest association in the world in the International Accounting Bulletin’s (IAB’s) annual 2022 World Survey Report.