I am advised by Revenue that Relevant Contracts Tax (RCT) is a withholding tax mechanism designed to improve tax compliance in certain industry sectors that were historically identified as presenting compliance risks, namely the construction, meat processing and forestry sectors. It operates in a similar manner to other withholding taxes including those in place in respect of share dividends and certain professional services.
A paper based withholding system was in place until 1 January 2012, when the electronic RCT (eRCT) system was introduced. The electronic system streamlined the administration of RCT, reduced the opportunity for fraud, improved the cash-flow position of compliant subcontractors and significantly reduced the compliance burden for persons operating the tax. For example, eRCT eliminates more than 1 million paper returns annually, reducing the cost of compliance to business by an estimated €85 million. In addition, Revenue uses the data collected through the eRCT system to pre-populate annual tax return forms thereby further assisting taxpayers to meet their obligations while also reducing compliance costs.
Revenue has assured me that the eRCT system is a flexible, user-friendly tool that can easily link in with other software packages that Principal Contractors can use to manage their own financial affairs as well as fulfil their RCT obligations. Revenue has also confirmed that the eRCT system is supported by extensive published guidance and it should not be necessary for taxpayers to engage a tax agent to operate it.