RCT Explained: What Every Irish Subcontractor Needs to Know
If you do subcontract work for builders, developers, or other contractors in Ireland, there is a good chance RCT applies to your payments. And if you’re not set up for it correctly, you’ll either be paying the wrong rate or, worse, getting a surprise letter from Revenue.
Relevant Contracts Tax (RCT) is specific to Ireland. It doesn’t exist in the UK or most other countries. A lot of tradespeople who’ve worked in the UK or are relatively new to working in Ireland have never encountered it. Here’s what you need to know.
What is Relevant Contracts Tax?
RCT is a withholding tax that applies to payments made by principal contractors to subcontractors in certain sectors in Ireland. It’s not a tax you pay separately. It’s deducted at source by the principal contractor before they pay you.
The system works like this: when a principal contractor is about to pay a subcontractor, they notify Revenue through the Revenue Online Service (ROS) before making the payment. Revenue responds with a deduction rate that applies to that payment. The principal contractor deducts tax at that rate and remits it to Revenue. The subcontractor receives the balance.
The subcontractor then accounts for the RCT deduction against their income tax liability. If the RCT deducted exceeds what you actually owe, you get a refund. If it’s less, you pay the difference.
It’s essentially a prepayment of your income tax, collected by the principal contractor on Revenue’s behalf.
Who does RCT apply to?
RCT applies to three sectors in Ireland: construction, forestry, and meat processing. For tradespeople, the relevant sector is construction, which Revenue defines very broadly.
Construction for RCT purposes includes: building, demolition, alteration, repair, extension, painting and decorating, electrical work, plumbing, heating, air conditioning, roofing, paving, drainage, and landscaping, among others.
The key trigger is the relationship: you are a subcontractor if you’re performing construction work under a contract for a principal contractor. A principal contractor is any person or business that enters into a relevant contract with a subcontractor. This includes main contractors, developers, house builders, and property owners who have a business interest in the construction.
Importantly: a homeowner hiring you directly to renovate their private house is generally not a principal contractor for RCT purposes. The typical RCT scenario is: developer or builder hires you to do trades work on a development or commercial project.
If you’re unsure whether a specific contract triggers RCT, ask the principal contractor. They’re legally required to operate RCT correctly and will know.
The three RCT rates and what determines yours
Revenue applies one of three RCT deduction rates based on your tax compliance record:
0%: applied to subcontractors with an excellent tax compliance record: all returns filed on time, all taxes paid, no outstanding issues with Revenue. If you’re fully compliant, you receive your full payment and account for the income in your normal tax return.
20%: applied to registered subcontractors who have some compliance gaps, such as late filings, outstanding amounts, incomplete registration. This is the most common rate.
35%: applied to unregistered subcontractors, or those with serious compliance issues. This is a significant deduction that creates cash flow problems and is worth avoiding entirely.
Your rate is determined by Revenue based on your compliance history. It’s not something you negotiate. The best strategy is simply to be fully compliant: all returns filed on time, all taxes paid.
How to register with Revenue and set up RCT on ROS
To operate at the correct RCT rate, you must be registered as a subcontractor with Revenue. This is done through ROS (Revenue Online Service) at ros.ie.
If you don’t already have a ROS account, you’ll need to register. The process involves requesting a digital certificate, which Revenue posts to your registered address, and then activating it online. The whole process takes approximately 10 days from initial registration.
Once registered, principal contractors can look up your deduction rate before paying you. You can check your own rate at any time through ROS.
If you become a principal contractor yourself, hiring subbies, you have additional obligations. You must notify Revenue of all relevant payments before making them through the RCT Notification system on ROS. Failing to do this makes you liable for the full RCT amount that should have been deducted, plus interest and penalties. This is a common and expensive mistake.
What happens if you ignore RCT
The consequences of ignoring RCT are significant and disproportionately affect the subcontractor, even though it’s the principal contractor’s responsibility to deduct.
If a principal contractor fails to deduct RCT and pays you the full amount, Revenue can still pursue you for the tax due. You may also find yourself assessed at the 35% rate on future payments, creating an immediate and severe cash flow impact.
If you’re a principal contractor who fails to operate RCT correctly, such as not notifying Revenue before paying subbies, or paying the full amount when you should have deducted, Revenue can assess you for the full amount that should have been withheld, plus interest from the date payment was made.
Revenue’s RCT system is fully electronic and real-time. They know about each payment before it’s made (because the principal contractor notifies them). The paper-trail is thorough. This is not an area where anyone gets away with being disorganised.
RCT and your annual tax return
All RCT deducted during the year appears on your Revenue record and is credited against your income tax liability when you file your annual return.
If your business has had significant RCT deducted during the year, particularly at the 20% rate, you may be entitled to a refund after filing your return. This is a genuine cash refund from Revenue and is worth filing accurately to claim.
The interaction between RCT, VAT, and income tax is one of the more complex areas of Irish tax for trades businesses. If you’re doing significant subcontract work and aren’t sure your returns are capturing everything correctly, it’s worth a review.
Need help getting your tax affairs in order?
RCT, VAT, income tax, and PRSI all interact, and getting any one of them wrong creates problems that ripple through the others. Our Fractional CFO for Trades service includes keeping you right with Revenue throughout the year, not just at filing time.
Book a free 30-minute call. No commitment required.
Or read next: Tax Planning for Irish Tradespeople Beyond the Year-End Return