In this month’s instalment of our 'Ask The Expert For Tradesmen' series we explore the subject of Tax. Oh yes, no shying away from the big issues here! We've reached out to Garry O'Rourke over at TaxAssist.ie to give us his thoughts on the Top 5 Tax issues they see for tradesmen. If you need to get more information you can get in touch with him or any of their national network of accountants.
The construction sector remains one of the most scrutinised sectors in terms of interventions by the Revenue Commissioners. With a raft of changes over the last few years, tradesmen face a complex tax system with a greater administrative burden.
If you are a tradesman here are my top 5 issues to consider when dealing with your tax affairs.
1) Employee or Subcontractor??
If you are a principal contractor you need to ensure that you are treating those working for you correctly from a tax perspective. Revenue are increasingly focused on situations where you may be treating somebody as a contractor but in essence they are an employee. For example you may have taken on a contractor on an ad hoc basis but over time the relationship has grown whereby that person is working 35-40 hours per week for you and is under your direct control. Revenue would see this as an employer/employee relationship.
Ultimately, it is your obligation to determine this and the Revenue have written some easy to understand guidelines to help which can be found on this link
2) Paying tax free travel expenses to employees – “Country Money”
Due to the transient nature of the business a special scheme for the reimbursement of tax free travel expenses to employees in the construction sector was agreed in the mid 70’s.
This scheme, commonly known as “country money”, is an area which Revenue have found to be incorrectly applied in the past so it is important to get it right. In order to pay employees tax free expenses in respect of out of pocket travel and subsistence costs, strict criteria must be met and if these criteria are not met then any payments are subject to PAYE/PRSI/USC.
For example, where an employee is engaged to work at one site only, any country money payments made to such an employee are fully taxable regardless of the distance travelled.
These rules are being constantly updated and different criteria apply dependant on what part of the country you are operating in. You can see the guidelines on the revenue site.
3) Relevant Contracts Tax and the eRCT system
One of the biggest recent changes tradesmen have had to get to grips with is the eRCT system.
Principal Contractors working in the construction sector who engage a sub-contractor to perform work for them must register for Relevant Contracts Tax (RCT). RCT is a withholding tax which applies to payments made by a principal contractor to a sub-contractor under a relevant contract (this is a contract to carry out, or supply labour for the performance of relevant operations in the construction sector)
All returns/payments in respect of RCT are made through the eRCT system. If you are a principal contractors make sure you;
- Notify Revenue of all contracts online
- Notify payments online
- Provide a -copy or details of the Deduction Authorisation to the Subcontractor
- Submit monthly/quarterly returns online
- Make payments of RCT deducted
4) VAT – The Reverse Charge
If a contract between a principal contractor and a sub-contractor is liable to RCT then the reverse charge system of VAT applies to any invoices issued by the sub-contractor to the principal contractor.
The charge the sub-contractor makes to a principal contractor does not include VAT. Instead the principal contractor calculates the VAT on the amount charged by the sub-contractor and pays the VAT directly to the Revenue Commissioners through his/her VAT return.
The VAT registered sub-contractor issues an invoice to the principal, which shows all the same information as appears on a VAT invoice, except the VAT rate and VAT amount. The invoice should include the VAT registration number of the sub-contractor.
Top tip: If you are a sub-contractor make sure your invoice contains the statement 'VAT on this supply to be accounted for by the Principal Contractor'
5) Tax Clearance – new system is real time
When tendering for lucrative contracts, in particular from State bodies, a valid tax clearance certificate must be produced by the principal contractor.
In the past the Tax clearance cert was a physical piece of paper with an expiry date on it, usually 12 months on from the application date.
Under the old system once you had this piece of paper then you had tax clearance for that twelve month period even if you fell behind with your tax returns in the intervening period.
Now, however, Revenue are operating a real time tax clearance system which can access Revenue records across all taxes to see if you are fully tax compliant at any point in time. This is all administered through an online system which can be accessed by anyone with a Revenue Online account and so even if you are behind on one return or payment your tax clearance can be revoked which could mean missing out on that big contract!
Garry O'Rourke is a chartered accountant with over 18 years experience and runs TaxAssist Dublin South as part of the TaxAssist network. TaxAssist Accountants is a nationwide network of accountants and work with thousands of tradesmen across Ireland helping them with their tax affairs. For a free consultation contact them today