Dáil Éireann díospóireacht -
Thursday, 29 Jan 1998

Vol. 486 No. 2

Written Answers. - Tax Collection.

Thomas P. Broughan

Ceist:

121 Mr. Broughan asked the Minister for Finance his views on the abolition of the C45 system of tax collection for the main labour services in the building industry in view of the allegations of widespread tax evasion by employers and of abuses of the social welfare system in several jurisdictions; and if his attention has been drawn to the decision of the United Kingdom authorities to revert to the PAYE system for these services in their construction industry. [2314/98]

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 subcontractors.

The C45 system, known as relevant contracts tax applies only to payments to self-employed subcontractors. 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. It would be imprudent to consider abolishing the system, which serves a useful purpose in ensuring tax compliance in the industries to which it refers i.e. construction, forestry and meat processing.

In this context 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. 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 they are both satisfied that the contract created is a contract of self-employment.

When the C45 system is applied incorrectly to payment of wages to employees, the employer remains liable for the PAYE/PRSI and levies which should have been deducted from the employee's wages and for the employer's PRSI contribution.

I am advised by the Revenue Commissioners that they are currently engaged in a special project aimed at detecting cases in which the C45 system is being used incorrectly in relation to payments to employees. Where an employment is considered to exist and PAYE/PRSI and levies are not being deducted, the principal is being advised to put matters on a proper footing. When this is not done, the principal will become liable for the PAYE/PRSI and levies.

I am also advised that Revenue and the Department of Social, Community and Family Affairs regularly conduct joint investigations under the joint investigation programme to ensure that those engaged as employees fully comply with the tax system and to ensure that employers are not facilitating "working and signing" arrangements.

It is understood the the UK Inland Revenue undertook a similar operation some time ago. However, no part of the C45 system as it operates in the UK is being abolished but the system is being confined to the type of payments to which it correctly refers i.e. payments to self-employed subcontractors. Legislative changes in the UK Finance Act, 1995, which have not yet come into effect, restrict the categories of subcontractors who will be able to receive payments without having tax deducted from the payment. Self-employed subcontractors who no longer qualify for an exemption certificate, equivalent to the C2 in this country, will receive payments subject to deduction of tax, i.e. C45 type tax. There is no indication on the part of the UK authorities that they intend to apply PAYE to self-employed subcontractors in the construction industry in the UK.