Revenue have announced an increased focus on compliance risks in the construction sector.
In recent reviews they have found that the VAT Reverse Charge is not being applied properly in a number of cases. In addition they have discovered issues with payments of Country Money and the operation of Relevant Contracts Tax.
Read on to see what the issues are and how this could affect you.
VAT Reverse Charge
The VAT Reverse Charge was introduced on 1 September 2008. In brief it means that subcontractors do not need to charge and account for VAT on construction services (except haulage for hire) supplied to principal contractors. Instead the principal contractor has to account for the VAT as if they had supplied the service.
Some of the issues Revenue have found relate to:
- Failure on the part of the principal contractor to self-account for VAT
- Incorrect completion of the VAT invoice by the sub-contractor
- Application of the two-thirds rule where the VAT Reverse Charge applies
- Ignoring the VAT Reverse Charge altogether when completing the VAT 3
- Failing to apply the VAT Reverse Charge when there is a construction supply between connected parties
Revenue will be looking closely at how the VAT Reverse Charge is being operated by contractors and, where appropriate, penalties will apply.
Because employees are required to travel to different building sites depending on the duration of the employer’s contract at each site an agreement is in place in relation to the payment of Country Money. This payment is designed to compensate employees for expenses incurred travelling varying distances to and from building sites and to cover subsistence expenses.
Whether Country Money can be paid without deduction of PAYE, PRSI and USC is subject to strict criteria. Revenue will be checking that payments of Country Money satisfy the criteria.
Operation of Relevant Contracts Tax
Revenue use the eRCT system in their risk analysis systems to identify cases where RCT is not being operated correctly and they use this in selecting cases for intervention. If contracts are not notified to Revenue or payments are not notified altogether or not notified until after the actual payment is made, issues arise.
If payments are being made under a relevant contract then RCT must be operated correctly and Revenue are on an increased look-out for this.
What This Means To You
Failing to operate the VAT, PAYE or RCT requirements correctly have an impact on your compliance history and can result in penalties being applied and/or your RCT deduction rate being increased. Clearly it is important that you can demonstrate that you are compliant in all these areas.
It is advisable to review your records and ensure that you are dealing with all these areas correctly. If not, it would be best to sort this now rather than wait for Revenue.
If you need any help in performing this review, in dealing with your obligations, or in dealing with Revenue please feel free to get in touch with us.