Dáil Éireann díospóireacht -
Wednesday, 29 Sep 1999

Vol. 508 No. 1

Written Answers. - Construction Industry.

John Gormley

Ceist:

365 Mr. Gormley asked the Minister for Finance if his attention has been drawn to black economy practices in the building industry and the campaign opposing this by the Building and Allied Trades' Union; and if he will make a statement on the matter. [18324/99]

Minister for Finance (Mr. McCreevy):

I take it that the Deputy is referring to the employment status of building and construction workers who are self-employed under the C45 system but who wish to pay tax and PRSI as employees.

Persons employed in the construction industry are classified for tax purposes as employees or as sub-contractors and tax is deducted from each group on a different basis. Sub-contracting itself is, of course, an integral part of the construction industry. Payments to sub-contractors 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. RCT was introduced in the 1970s to counter the growing incidence of black economy activity in the construction industry. Workers operating under the system known as "the lump" were being paid without tax being deducted. The Revenue Commissioners have confirmed that RCT continues to play a vital role in combating tax evasion in the construction industry.

The employment status of building and construction workers is primarily a matter of fact and law for the individuals involved. Following a comprehensive review in 1995-96, Revenue issued guidelines to the industry setting out the criteria under which a person may be regarded as an employee as distinct from a sub-contractor. Principal contractors and sub-contractors 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. The joint declaration was introduced in line with a recommendation of a sub-committee of the black economy monitoring group which looked at the construction indus try. Its members are drawn from the CIF and ICTU as well as the Revenue Commissioners and the Department of Social, Community and Family Affairs. Both parties to the declaration certify that they have considered the guidelines issued by the Revenue Commissioners as to the difference between contracts of service (employment contracts) and contracts for services (self-employment) and are satisfied that the contract which they are about to enter is a contract for services.

Any member of the construction industry subgroup of the black economy monitoring group who feels that there are black economy issues relating to the industry which need to be brought to the attention of Revenue and the Department of Social, Community and Family Affairs is free to call for a meeting of this sub-group. It almost goes without saying that in its ongoing drive to identify the correct basis of deduction of tax in respect of each individual, Revenue is happy to receive information from other organisations or individuals. In this context, for example, facilities have been made available to trade unions representatives to report any cases where they consider that PAYE should have applied instead of RCT.

In October 1997, a project commenced to check whether persons who were registered as self-employed sub-contractors were in fact correctly registered or whether, instead, they should pay tax and PRSI through the PAYE/PRSI system. In total 6,420 visits were carried out, 6,040 of which were in 1998. The tax registration status of over 63,000 sub-contractors was reviewed and it was found that about 12,000 should have been treated as employees rather than self employed sub-contractors. Corrective measures were taken as necessary and these taxpayers will continue to be monitored in future years as part of the normal audit programme.