New VAT Rules For Contractors Come Into Force In Ireland

by Jason Gorringe Tax, News.com, London

03 September 2008

Ireland's Revenue Commission reminded taxpayers this week that from September 1, 2008, major changes in how principal contractors and sub-contractors in the construction industry account for VAT have entered into force.

The new system applies to principal contractors and sub-contractors involved in construction operations to which Relevant Contracts Tax (RCT) applies (but excluding haulage for hire).

RCT applies when a principal contractor is obliged to deduct tax at 35% from payments to a sub-contractor or would have to do so but for the fact that the principal contractor holds a Relevant Payments Card (RCT 47) for that sub-contractor.

Public bodies, including Local Authorities, who receive construction services are principal contractors for RCT purposes and the person who contracts to provide such services to a public body is regarded as a sub-contractor.

Prior to September 1, 2008 the charge that a sub-contractor made to a principal contractor included VAT on that service. The principal paid the sub-contractor, and the sub-contractor passed on the VAT to the Revenue Commissioners.

From September 1, 2008 the charge the sub-contractor makes to a principal contractor does not include VAT. Instead, the principal contractor must calculate the VAT on the amount charged by the sub-contractor, and pay the VAT directly to the Revenue Commissioners through his/her VAT return.

The Revenue initially flagged up the rule change in late May, stressing that it was essential that clients were able to prepare for the change, in order to ensure a smooth transition to the new system.

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