I am informed by the Revenue Commissioners that Relevant Contracts Tax (RCT) is a withholding tax system that operates in the construction, forestry and meat processing sectors. Principal contractors are defined in the legislation (section 530A of the Taxes Consolidation Act 1997) as including “any board or body established by or under statute … and funded wholly or mainly out of funds provided by the Oireachtas”. As such, school Boards of Management are principal contractors for the purposes of RCT. Under VAT law, where a principal contractor (generally as defined for RCT purposes) receives services consisting of construction operations (again generally as defined for RCT purposes) the principal is an accountable person and is liable to pay the VAT chargeable on those services on a reverse charge basis. In this regard, where a school Board of Management receives services consisting of construction operations the Board must register for VAT and account for VAT on the received services.
I am also informed that Finance Act 2011 did not introduce any change in terms of the obligations of Boards of Management to operate RCT or VAT. Nor did the Revenue Commissioners issue a directive in this regard. Principal contractors, including school Boards of Management are, and always were, required to deduct tax from the payments made to subcontractors and pay it over to Revenue. As it is recognised that it would be undesirable to deduct tax from compliant subcontractors, provision is made for compliant subcontractors to receive payments without deduction of tax. The need to ensure tax compliance by subcontractors is particularly important where the Exchequer is the ultimate source of the funds being paid out by school Boards of Management and other principal contractors. RCT and the VAT reverse charge system play an important role in ensuring tax compliance by subcontractors in these sectors.
From 1 January 2012, the Revenue Commissioners have substantially modernised the operation of RCT following the introduction of a dedicated online facility which offers principal contractors a fast, efficient and paper free system. This has streamlined the process for the submission of information and payments to Revenue and has had the effect of significantly reducing the administrative burden associated with RCT.
I am further informed by the Revenue Commissioners that they are aware of the difficulty some school Boards of Management may be having in fulfilling their obligations under the RCT and VAT systems. Revenue has met with the Department of Education and Skills regarding the obligations of Boards of Management under the RCT and VAT systems and has also met with representatives of some Boards of Management. In addition, Revenue has participated in a series of seminars throughout the country during September/October 2012 organised by the Joint Managerial Board in conjunction with the Catholic Primary School Management Association. These seminars are aimed at school Principals, members of boards of management, bursars and secretarial/accounts personnel who are likely to be in receipt of State funding for construction projects with a view to assisting them with their RCT and VAT responsibilities. Detailed guidance notes specifically tailored for school Boards of Management regarding the operation of RCT and VAT were made available by Revenue in July and the availability of these notes has been highlighted to the Boards of Management representative bodies. They have been published on the Revenue website www.revenue.ie.
Finally, having regard to the pressures on the public finances, it is important that the RCT and VAT systems are implemented correctly in order to minimise tax evasion in the construction sector particularly where the project involves substantial State funding. The new online system introduced by Revenue has significantly simplified the RCT process for principal contractors, including school Boards of Management.
