An interesting point was raised in a recent conversation with a client who was considering a Direct Labour approach to a construction project. Who is the main contractor as defined by Revenue legislation?

If you engage sub contractors to carry out work on building or improving your home this is what is classed as a Relevant Contract and there are particular rules that govern taxation of Relevant Contracts.

“RCT applies to payments made by a principal contractor to a subcontractor under a relevant contract (this is a contract to carry out, or supply labour for the performance of relevant operations in the construction, forestry or meat processing industry). RCT applies to both resident and non-resident contractors operating in the construction, forestry or meat processing industry.”

The hinge point here is if in the eyes of the Revenue, a self-builder, is classified as a Main Contractor for taxation purposes.

With the pressures on the coffers of the Revenue you can be sure that they are going to be beating a path to the door of any building project under way and ask to examine the records of payments and systems of engagement of subcontractors

“If a subcontractor does not hold a C2 card, the principal contractor cannot apply for a relevant payments card (RCT47). RCT (35%) must be deducted from all payments to the subcontractor. The principal contractor must issue an RCTDC to the subcontractor and record the payment”

The penalties for the incorrect application of the RCT system are quite steep and you are hesitant to make a mistake!

• if a principal contractor has not received an RCT 47 for the subcontractor, they must deduct relevant contracts tax (RCT) at 35% from each payment to the subcontractor. If a principal has made gross payments to a subcontractor without having obtained the RCT 47 (or after the limit on the RCT 47 has been reached), the principal will be liable for the tax (RCT) that should have been deducted from the subcontractor. Interest and penalties may also be applied.

Thus if a main contractor is found to have paid €1000 in cash to a sub contractor they will be liable for the 35% which should have been deducted as a result of the unconfirmed tax status of the individual or company. A series of decisions like this could make you self-build an expensive project indeed!

There is also a change in the recording and accounting of VAT liabilities on subcontractors. Again if decision goes against you, you may find that you are further penalised for the ‘missing’ 13.5% VAT which should have gone to the Revenue.

• As a principal contractor in the construction sector, you will be affected by the introduction of the VAT Reverse Charge on construction services that are subject to RCT.

Then there’s the filing:

• You must retain all relevant payments cards (Forms RCT47), relevant tax deduction cards (Forms RCT 48) and Forms RCT 1 for a period of 6 years after the end of the tax year to which they refer.

All in all, if the Revenue decide to target Self-builders as Main Contractors there is a minefield of compliance issues to be dealt with which will have a wide reaching impact on the savings that were being considered by the self-builder in Doing it Yourself.