Relevant Contracts Tax in Ireland: The 35% Rate Is a Choice Somebody Made

Relevant Contracts Tax is the reason a €10,000 job can arrive in a subcontractor’s account as €6,500. It is also the reason a builder in Cork can owe Revenue a penalty of €3,500 on a payment he made in full and on time. The plasterer even did good work. Neither outcome is bad luck. Both are the direct result of a rate that somebody set by doing nothing.

The operator consequence sits on both sides of the contract. If you are the subcontractor, your rate decides how much of every invoice you see before the year end. If you are the principal, the ROS notification you skipped before paying becomes a civil penalty of up to 35% of the payment. That is on top of the tax you should have withheld. Most one-person operators are both principal and sub in the same month. So getting Relevant Contracts Tax wrong is expensive twice over.

How Relevant Contracts Tax works

RCT is a withholding system, not a separate tax. It applies where a principal contractor makes a payment to a subcontractor under a relevant contract in construction, forestry or meat processing. A principal is anyone whose business includes construction operations and who subcontracts part of that work. So a plumber who brings in an electrician for a bathroom job is a principal for that payment, whether or not they think of themselves that way.

Everything runs through ROS. Before work starts, the principal notifies the contract. Before each payment, the principal submits a payment notification and receives a deduction authorisation stating the rate to withhold. The principal pays the net amount and remits the deduction. Then, at the end of each return period, monthly for most, they file a deduction summary by the 23rd of the following month. The subcontractor gets credit for every euro deducted against their own income tax or corporation tax. They can also claim a refund, or offset it against VAT or PAYE liabilities during the year.

One more rule travels with it. Where RCT applies, VAT on the supply is reverse-charged. The subcontractor does not add VAT to the invoice. Instead, the principal accounts for it directly to Revenue, at 13.5% for construction services. An invoice carrying VAT to a principal is a mistake, and so is one that omits the reverse-charge statement.

The three rates, and who chose them

Revenue assigns each subcontractor one of three deduction rates. The rate is a compliance grade, and it follows you across every principal you work for.

Rate	Who gets it	What lands on a €10,000 payment	Principal’s penalty if the payment goes unreported
0%	Registered subcontractors with a clean compliance record, in practice about three years of returns filed and tax paid on time, and current tax clearance	€10,000	3% of the payment: €300
20%	Registered subcontractors who are substantially compliant but do not yet meet the 0% test, including most new businesses	€8,000, with €2,000 credited to your tax account	10% of the payment: €1,000
35%	Subcontractors not registered for RCT, unknown to Revenue for the contract, or with a serious compliance history	€6,500, with €3,500 credited if you later register and claim it	20% of the payment: €2,000
Unknown	A subcontractor Revenue cannot match at all when the principal reports late	Depends on the rate once matched	35% of the payment: €3,500

The first column is not fixed. Revenue reviews rates. A subcontractor on 20% who files every return on time and clears every liability will be moved to 0%. The reverse is also true. Miss a VAT return or leave income tax unpaid and the next deduction authorisation can come back at 35%. Our read is that the rate table is the most honest scorecard in Irish construction. It measures nothing except whether your paperwork is in order.

Where Relevant Contracts Tax goes wrong on real jobs

Take a Cork builder with a steady stream of extensions. A regular plasterer is unavailable, so a new one comes recommended, does two weeks’ work, and invoices €10,000. The builder pays it, as he would pay any supplier. The contract was never notified on ROS and no payment notification was filed. Revenue treats it as an unreported payment. Because the plasterer had never registered for RCT, the penalty is set at the top of the scale. That is 35% of the payment, or €3,500. The builder is also expected to account for the RCT that should have been withheld. He can only recover that from the plasterer if the plasterer is still answering the phone.

Nothing about the work was wrong. The invoice was real, the plastering was sound, and the money changed hands honestly. The penalty attaches to a missing notification. Principals who keep every subcontractor’s tax reference, contract notification and payment acknowledgement with the job record never face this. The deduction authorisation is pulled before the transfer is made, rather than reconstructed after. With SendWork holding each subcontractor’s details and every payment against the job it belongs to, the ROS step becomes part of paying the invoice. It stops being a separate task remembered later.

What subcontractors should do about their rate

The 35% rate is almost always self-inflicted, and it is reversible. Register for RCT through ROS before your first contract, not after. Ask every principal to confirm the contract has been notified before you start. A contract that is not on ROS cannot carry your rate. Keep every deduction authorisation copy the principal sends you. It is your evidence when the year-end credit does not match your records. Then treat the 0% rate as a business goal with a date on it. Three years of clean filing across income tax, VAT and PAYE is the price, and it is worth 20% of your cash flow.

The Relevant Contracts Tax checklist

• Decide, per job, whether you are a principal. Subcontracting any construction operation makes you one for that payment, even as a sole trader.
• Notify the contract on ROS before the subcontractor starts. Late notification is what turns a compliant sub into an unknown one.
• Submit a payment notification before every payment. The deduction authorisation tells you the rate. Pay only after it arrives.
• Give the subcontractor a copy of the authorisation. It is their proof of credit.
• File the deduction summary and pay by the 23rd. Check Revenue’s pre-populated summary against your own records; unreported payments show up here.
• Reverse-charge the VAT. No VAT on the subcontractor’s invoice; the principal accounts for it.
• As a subcontractor, check your rate on ROS each quarter. A downgrade to 35% often arrives before the letter does.

Relevant Contracts Tax: the operator takeaway

RCT does not cost a compliant operator anything. It defers cash for a subcontractor on 20% and it adds a two-minute step for a principal. It only becomes expensive when the step is skipped. Then the penalty scales with how unknown the subcontractor was to Revenue at the moment the money moved. The 35% rate, and the 35% penalty, are both the price of not being on the system.

The rules, rates and penalty scale are set out by Revenue in its Relevant Contracts Tax guidance. On the subcontractor side of the same cash flow, RCT credits land against your own bill at the year end. That timing is one reason preliminary tax planning matters more in construction than in any other trade.

What can wait is chasing the 0% rate if you are still in year one. What cannot wait is the ROS registration and the first contract notification, both of which take less time than reading this.

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