Dáil Éireann debate -
Tuesday, 12 May 1998

Vol. 490 No. 7

Written Answers. - Taxation Code.

Michael Creed

Question:

157 Mr. Creed asked the Minister for Finance if his attention has been drawn to the fact that the Revenue Commissioners have changed their interpretation of Chapter IV, Part V of the Income Tax Act, 1967 and, as a result, many subcontractors are being disqualified from works they carried out heretofore; and if he will make a statement on the matter. [11142/98]

Minister for Finance (Mr. McCreevy)

I am informed by the Revenue Commissioners that persons employed in the construction industry are classified for tax purposes as employees or as subcontractors. The correct classification of a particular worker in the industry depends on the facts of the particular case and relevant case law which determines whether an employment contract exists. In general, to be classified as a subcontractor a worker needs to be in business on his or her own account. The Revenue cannot dictate the terms under which workers are engaged in any industry, nor does it have any control over the reasons the parties to an agreement enter into that agreement.

Revenue recognise that subcontracting is an integral part of the construction industry. Payments to subcontractors come within the relevant contracts tax, RCT, system — commonly referred to as the C2 or C45 system. Under this system, where a principal contractor makes a payment to an unregistered contractor, he or she is required to deduct relevant contracts tax from those payments at the rate of 35 per cent.

Revenue has issued guidelines to the industry setting out the criteria under which a person may be regarded as an employee as distinct from a subcontractor. These guidelines were issued some years ago and have not changed. Principal contractors and subcontractors creating self-employment contractual arrangements must sign a declaration to the effect that these guidelines have been considered by them, and that they are both satisfied that the contract created is a contract of self-employment.

Revenue have advised me that they are currently engaged in a nationwide campaign to ensure the declarations made by principal contractors and subcontractors represent the true situation. This campaign includes site visits and entails an examination of the declarations by reference to the particular circumstances of the persons employed. Where the subcontractor status is considered to be inconsistent with the terms of employment, the principal is being asked to deduct PAYE, PRSI and income levies. To this extent, it will result in persons who were previously classified as subcontractors being classified as employees. However, this does not represent a change in the interpretation of the law.