If you subcontract work to other trades, or you take on subcontracted work yourself, and you operate in construction in Ireland, there is a tax system you cannot afford to get wrong. Relevant Contracts Tax, almost always called RCT, governs how payments move between contractors on construction jobs, and it catches people out in two directions: subcontractors surprised to find a chunk withheld from their payment, and principal contractors landed with heavy penalties for paying someone the wrong way. Neither is about how much profit you make. RCT is a withholding system, and the rules are strict, online, and unforgiving of shortcuts.

Today, let's take a look at what RCT actually is, who it applies to, how the deduction rates and the payment process work, and where the expensive mistakes are. It is written for field service and trades businesses operating in the Republic of Ireland, whichever side of the contract you are on, and sits alongside our other Irish guides, from electrical certification in Ireland to business grants across Ireland and Northern Ireland.

Here's what RCT actually is

RCT is a withholding tax that applies to payments made by a principal contractor to a subcontractor for construction work, or, in the two other sectors it covers, forestry and meat processing. For most field service businesses, construction is the relevant one.

"Relevant operations" is broader than new-build work, and it covers a lot of what field service trades do day to day: the installation of heating, ventilation, air conditioning, and lighting; plumbing and drainage installation and repair; electrical installation; the fitting of windows; alteration, repair, and extension of buildings; and demolition and site preparation. So a heating engineer, an electrician, or a plumber taking subcontracted work on a construction project is very often inside RCT, even for what feels like routine installation or repair rather than "construction" in the everyday sense.

The mechanism is straightforward in principle. Rather than paying a subcontractor the full amount and trusting that the subcontractor sorts out their own tax later, the principal contractor deducts tax at source from the payment, at a rate Revenue tells them to apply, and sends that deduction straight to Revenue. The subcontractor then gets credit for the deducted amount against their own tax bill. It exists to make sure tax gets paid in a sector where, historically, it often did not.

The key mental shift is that RCT is not a tax on your profits, and not something you calculate yourself. Revenue instructs the deduction on a payment-by-payment basis, and the whole thing runs electronically through the Revenue Online Service, ROS. There is no paper version and no informal version.

Who counts as a principal contractor, and why it catches people out

This is where businesses get caught, because the definition of a principal contractor is broader than most people assume. You do not have to be a large construction firm. You are a principal contractor, with all the RCT obligations that brings, whenever you engage another business to carry out relevant construction operations on your behalf.

That means a field service business that subcontracts out part of a job, a maintenance company bringing in an electrical or mechanical subcontractor on a construction project, a business fitting out its own premises and engaging trades to do it, can all find themselves acting as a principal contractor without ever having thought of themselves as one. Revenue is explicit that you can be a principal even if you are not what anyone would call a mainstream builder. The obligations attach to what you are doing, subcontracting relevant operations, not to what you call your business.

So the first practical question is not "am I a construction company" but "am I paying another business to do construction work for me." If the answer is yes, RCT almost certainly applies, and the responsibility for operating it sits with you as the principal, not with the subcontractor. This is a separate question from whether the people doing the work are genuinely subcontractors or really employees, which our guide to employees versus subcontractors covers, but both matter, and getting the status wrong can compound an RCT problem.

The three deduction rates

Revenue operates three RCT deduction rates, and which one applies to a given subcontractor depends entirely on that subcontractor's tax compliance record, not on the type of work or the size of the job.

• The 0% rate is the one every subcontractor wants. It goes to subcontractors with a strong, clean compliance record, generally three years of full tax compliance behind them. At 0%, the principal deducts nothing and pays the subcontractor in full, though the principal must still go through the whole notification process, which matters, as we will see.

• The 20% rate is the standard rate. It applies to subcontractors who are registered and known to Revenue and broadly compliant, but who do not qualify for 0%. New businesses generally start here: for the first few years, before you have built the three-year compliance record, 20% is the rate you should expect.

• The 35% rate is the penalty rate in all but name. It applies to subcontractors who are not registered with Revenue at all, or who have a poor compliance record. If you are a subcontractor being deducted at 35%, more than a third of every payment is being withheld before it reaches you, which is brutal for cash flow, and it is a strong signal that you have a compliance problem to fix.

For a subcontractor, the rate is a direct cash flow issue, and the important thing to know is that it is not fixed. If your rate is higher than it should be, you can address the underlying compliance issues and apply to have it reviewed, and you can appeal a determination within 30 days. Getting from 35% to 20%, or from 20% to 0%, is a real and worthwhile cash flow win.

How the payment process actually works

The RCT process runs in a set order through ROS, and every step matters, because skipping any of them is where the penalties come from. For a principal contractor, it goes like this.

First, you register as a principal contractor and notify Revenue of the contract. When you take on a subcontractor for relevant work, you tell Revenue about the contract before it starts, with the subcontractor's details, where the work is, and the estimated value. Revenue issues a Site Identification Number, a SIN, for the project. If work on the same site is subcontracted further down the chain, everyone uses that same SIN.

Second, and this is the step people skip at their peril, you notify Revenue of each payment before you make it. Ahead of paying the subcontractor, you submit a payment notification through ROS, and Revenue responds with a deduction authorisation telling you exactly what rate to apply to that payment, 0%, 20%, or 35%. You do not guess the rate and you do not use last month's rate; you get it authorised for that payment.

Third, you deduct at the authorised rate and pay the rest. You withhold whatever Revenue's authorisation specified, pay the balance to the subcontractor, and remit the deducted amount to Revenue, due by the 23rd of the month following the return period when paying electronically. The subcontractor receives credit for the deduction against their own tax liability.

For the subcontractor, the process is mostly visible through your own ROS account: you can see the contracts notified against you, the rate determinations, and the deductions made, so check these regularly rather than discovering a problem at year end.

The point that matters most to a subcontractor, and the one that causes the most needless worry, is what happens to the deducted money. It is not gone. Every euro deducted under RCT is credited to your Revenue account and offset against your own tax liability when you file your annual income tax return, the Form 11. If the RCT deducted across the year comes to more than your final tax bill, the excess is refundable once your return is filed and processed. So a 20% deduction works as a payment on account against tax you would owe anyway, not an extra 20% tax, and anything overpaid comes back. The catch is that it does not come back automatically. You have to file, claim the credit, and reconcile the deductions against what actually landed in your bank, which is why keeping every deduction record matters. Treating the deduction as money lost, rather than a credit to reclaim, is one of the most common and costly misunderstandings among subcontractors.

Where the expensive mistakes happen

The costly errors in RCT are almost never about the tax itself. They are about the process, specifically, a principal contractor paying a subcontractor without going through the notification and authorisation steps properly. Revenue treats a payment made outside the deduction authorisation process as an unreported payment, and the penalties are significant and tiered by the subcontractor's status.

The penalty for an unreported payment is 3% where the subcontractor was at 0%, 10% where they were at 20%, 20% where they were at 35%, and 35% where the subcontractor was unknown to Revenue. Read that again, because it contains the trap that surprises people most: you can face a 3% penalty on a payment even where the correct deduction rate was 0% and no tax was actually due.

In other words, doing the paperwork wrong is punishable even when you deducted nothing, because the offence is not operating the system, not underpaying tax. Paying a subcontractor early, skipping the payment notification, or paying outside the authorisation you were given all fall into this trap.

That is why "just pay them and sort the RCT out later" is one of the most expensive habits a principal contractor can have. The system is designed to be operated payment by payment, in order, and the penalties exist precisely to stop people treating the notification steps as optional admin. For a busy field service business juggling multiple jobs and subcontractors, that discipline is hard to maintain on memory alone, which is where organised records and a proper process earn their keep.

Keeping job costs and subcontractor records straight, so every subcontractor payment is tied to its contract and its authorisation, is what keeps you the right side of Revenue.

How RCT and VAT fit together

RCT does not operate in isolation, and the link to VAT is the part that most often confuses trades businesses. Where a payment falls within RCT, the VAT reverse charge generally applies too. That means the subcontractor does not charge VAT on the invoice; instead, the principal contractor accounts for the VAT directly to Revenue on their own VAT return.

So on a typical RCT-covered construction job, two things happen at once: the principal deducts RCT from the payment at the authorised rate, and the principal self-accounts for the VAT rather than the subcontractor charging it. The subcontractor's invoice shows no VAT and carries wording noting that the VAT is to be accounted for by the principal contractor.

There is a useful knock-on point here that trips people up. Ireland's two-thirds rule, which can push a construction job from the 13.5% VAT rate up to 23% when materials exceed two-thirds of the value, does not apply on a reverse-charge invoice to a principal contractor, because you are not charging VAT on that invoice at all. It only comes back into play when you work directly for a homeowner or a business that is not a principal contractor, where normal VAT rules apply and you charge the VAT yourself.

Knowing which situation you are in tells you whether the two-thirds rule is even a question. Getting one of these right and the other wrong is a common source of trouble, so understand them together. Our guide to VAT for field service businesses in Ireland covers the reverse charge in more detail, and the two systems really are best understood as a pair.

What to actually do

If you are a principal contractor, the essentials are these. Register and notify Revenue of every relevant contract before work starts. Notify every payment before you make it, and deduct only at the rate Revenue authorises for that payment. Never pay a subcontractor for relevant work outside that process, however trusted they are or however urgent the payment, because that is the most expensive mistake in the system. Keep in mind, too, that you may be a principal contractor even if you do not think of your business as construction.

If you are a subcontractor, the priority is your rate, because it comes straight off your cash flow. Register with Revenue, stay compliant, and work toward the 0% rate over time. Check your ROS account so you know your current rate and can see the deductions credited to you, and if your rate is wrong or has moved against you, resolve the underlying issue and seek a review or appeal rather than living with a 35% deduction you could reduce. Remember, too, that the deducted money is yours to reclaim: file your Form 11, claim the RCT credit, and reconcile it against your records, because it does not come back on its own.

Either way, because RCT and the VAT reverse charge travel together on construction work, treat them as one piece of the puzzle rather than two, and if you are moving into subcontracted construction work for the first time, a short conversation with an accountant to set your process up correctly will save you far more than it costs.

Key Takeaways

RCT is not complicated once you see what it is: a withholding system that makes principal contractors deduct tax from subcontractor payments at a Revenue-set rate, operated payment by payment through ROS. The rate, 0%, 20%, or 35%, comes down to the subcontractor's compliance record, and for a subcontractor it is a direct cash flow issue worth actively managing. For a principal contractor, the golden rule is never to pay outside the notification and authorisation process, because the penalties for doing so are real even when no tax was due.

Get the process right, keep clean records, understand that RCT and the VAT reverse charge work together, and RCT becomes a routine part of running construction work in Ireland rather than a source of nasty surprises. Treat the notification steps as optional, and it becomes one of the more expensive lessons a trades business can learn.

Take this information as general guidance, not tax or legal advice, and RCT rules are detailed and situation-specific. For the current rules and anything specific to your business, refer to Revenue's RCT guidance or consult a qualified accountant or tax adviser before acting.

FAQS

What is Relevant Contracts Tax (RCT) in Ireland?

RCT is a withholding tax that applies to payments made by principal contractors to subcontractors for relevant operations in the construction, forestry, and meat-processing sectors in Ireland. Rather than paying a subcontractor in full, the principal contractor deducts tax at source at a rate set by Revenue, 0%, 20%, or 35%, and pays that deduction directly to Revenue, with the subcontractor receiving credit for it against their own tax. It is a deduction-at-source system operated entirely online through ROS, not a tax on profits.

Who is a principal contractor for RCT purposes?

A principal contractor is any business that engages a subcontractor to carry out relevant construction operations on its behalf, and the definition is broader than many expect. You do not have to be a mainstream construction company. A field service or maintenance business that subcontracts out construction work, or one fitting out its own premises using engaged trades, can be a principal contractor with full RCT obligations. Revenue is explicit that you can be a principal even if you would not describe your business as construction, which is why RCT often catches businesses by surprise.

What are the RCT deduction rates and how are they decided?

There are three RCT rates: 0%, 20%, and 35%. The rate applied to a subcontractor depends on their tax compliance record. The 0% rate applies to subcontractors with a strong compliance record, generally three years of full compliance. The 20% rate is the standard rate for registered, broadly compliant subcontractors, and new businesses usually start here. The 35% rate applies to subcontractors who are unregistered or have a poor compliance record. Subcontractors can work toward a lower rate by resolving compliance issues and can appeal a rate determination within 30 days.

What happens if a principal contractor pays a subcontractor without operating RCT?

Revenue treats a payment made outside the deduction authorisation process as an unreported payment and applies a penalty. The penalty is tiered by the subcontractor's status: 3% where the subcontractor was at 0%, 10% at 20%, 20% at 35%, and 35% where the subcontractor was unknown. Importantly, a penalty can apply even where the correct deduction rate was 0% and no tax was due, because the offence is failing to operate the system correctly, not underpaying tax. Paying early, skipping the payment notification, or paying outside the authorisation all risk this.

Can a subcontractor get RCT deductions back?

Yes. RCT deducted from your payments is credited to your Revenue account and offset against your own income tax liability when you file your annual return (Form 11), so it works as a payment on account rather than a final tax. If the total RCT deducted across the year exceeds your final tax bill, the excess is refundable once the return is filed and processed. The deduction does not come back automatically, though, so you need to file your return, claim the credit, and reconcile the deductions against your records. Treating RCT deductions as money lost rather than a credit to reclaim is a common and costly mistake among subcontractors.

How do RCT and VAT work together on construction jobs?

On construction work within RCT, the VAT reverse charge generally applies alongside the RCT deduction. This means the subcontractor does not charge VAT on their invoice; instead, the principal contractor accounts for the VAT directly to Revenue on their own VAT return. So on a typical RCT job, the principal both deducts RCT from the payment and self-accounts for the VAT. The subcontractor's invoice shows no VAT and notes that the VAT is to be accounted for by the principal contractor. Because the two systems travel together, they are best understood as a pair.