RCTDC & VAT returns question...

Wertz

Looking for some help/information relating to RCT and VAT.
I recently invoiced a principal contractor for the amount owing including VAT for a period of work carried out over Jan/Feb....he paid me a few days later by cheque and sent me the pink RCTDC form for the other 35%. So far so good.

Now last week I filed my first VAT3 form, all balanced and correct. On the VAT3 form I included my acc no and sort code for any payments; I understood that the bank details were for the paying back of any VAT I reclaimed....that was until I looked at my online banking this evening and noticed a debit to my account for the amount of VAT payable, less the reclaimed amount. this was a bit of a "WTF?" moment for me, because AFAIK I hadn't given them permission to debit the account (which was luckily in credit)...but that's not really my issue here.

So here's my question...does the VAT owed by me not get taken out of the 35% RCT payment made by the contractor?
As a sole trader, my income tax liability for the year is unlikely to exceed the 21% threshold, so why is RCT such a high figure? I was of the impression that the 35% deducted went on to cover my VAT for any given month(s), my PRSI and my income tax, with (hopefully) a little left over for a refund
Was I wrong in thinking that?
I have submitted the RCTDC slip to the tax office to reclaim what I'm due...as I'm now also down the VAT amount paid, finances are tight...when could I expect to have any monies refunded to me?

Thanks in advance for any replies...I'd just ask accountant normally but he's on holiday till next week and this is a wee bit urgent.

gordotempo

I get this all the time and usually they are self emploted subcontractors.

Subbies seem to think that revenue just refund u all the VAT on ur purchases and they expect to get s refund on of VAT every two months. They ususally get this info from chatting to they're mates who are also subbies. "You can claim the VAT back on that" ot the other one is "You can write that off against your tax"

Sorry lads it doesn't work like that..

VAT on sales less VAT on purchases = Vat payable/repayable.

The other one that bugs me is that people think that revenue have telepathy... e.g. "You need to submit ur tax return for 2006" "But sure I wasnt even working that year I was working for me mate Pat, can they not tell that?"

Submit ur RCTDC or C45 as subbies still call it and tell revenue that u wish to offset ur RCT against any outstanding liabilities.

Mr. Incognito

does the VAT owed by me not get taken out of the 35% RCT payment made by the contractor?

No. The logic behind this is just because you have received a RCTDC does not mean the principal contractor has physically paid the 35% RCT to Revenue. It is more economical and streamlined for Revenue to go straight to the source for VAT, i.e the person who owes it- you rather than debit it against any monies you may be owed back.

You could of course avoid the deductin of the 35% in the first place by applying for a certificate of authorisation (Form C2)

Bren1609

Part of what the previous poster said is true but to answer your question:

You need to tell revenue to offset the RCT against your VAT.

35% witholding tax on RCT is statutory, it dosent matter what your turnover is. The reason for deducting such a high amount is to encourage tax compliance within the construction industry, it's has nothing to do with income tax or PRSI.

Now go and tell ur mates:D

mkdon05

SetantaL wrote: »

You could of course avoid the deductin of the 35% in the first place by applying for a certificate of authorisation (Form C2)

If sorting out the vat end of things is causing him trouble, applying for a C2 would send him round the bend:D



Also to OP, the bank details you fill out on the Vat3 form are only for taking payments.
For repayments bank details must be givin to the revenue seperately.

Wertz

gordotempo wrote: »

I get this all the time and usually they are self emploted subcontractors.

Subbies seem to think that revenue just refund u all the VAT on ur purchases and they expect to get s refund on of VAT every two months. They ususally get this info from chatting to they're mates who are also subbies. "You can claim the VAT back on that" ot the other one is "You can write that off against your tax"

Sorry lads it doesn't work like that..

VAT on sales less VAT on purchases = Vat payable/repayable.

The other one that bugs me is that people think that revenue have telepathy... e.g. "You need to submit ur tax return for 2006" "But sure I wasnt even working that year I was working for me mate Pat, can they not tell that?"

Submit ur RCTDC or C45 as subbies still call it and tell revenue that u wish to offset ur RCT against any outstanding liabilities.

Thanks for the reply, but I'm not thick, I know what I can claim back for and what I can't and since I provide services and very few materials my reclaimable VAT is only for fuel/transport/tolls, tools, lunch expenses, materials...I'm not expecting to be able to buy HDTVs or other luxury goods and say "hey I don't have to pay VAT on those!". There won't be a time when I'm claiming more VAT back than I'm charging.
The only reason I regged for VAT in the first place is so that if things pick up I can buy a commercial vehicle and some larger tools of the trade (that's if things pick up) and because currently my work is for principal contratcors rather than the general public.


VAT on sales less VAT on purchases = Vat payable/repayable.

Seriously? :rolleyes:
Yeah we're all early school leavers in the construction industry...we can't possibly grasp the advanced concepts of tax compliance...funny how we manage to post without resorting to txt spk though, eh?

To the rest of the readers/respondents, sorry for the tone I've taken with this post, but I don't need to be talked down to on the subject of my business or relatively simple tax concepts. I was asking a question re: the method revenue use for deducting tax/VAT...not for a series of generalisations about perceived stupidity in the construction sector.



To all the other respondents, thanks for the helpful and informative replies.
I don't want a C2...I've seen too many people with them end up in trouble over the years, come returns time and in some cases having to cease trading. I'm happy enough on RCT. Should things pick up, or I need to employ someone, I may go down that route but right now it's a hassle.

No-one managed to answer my question re: how long it takes to see some sort of refund on the RCT paid....right now, I'm down 35% of my take and then I'm landed with a VAT bill I thought I'd already been docked for...how do revenue expect a small firm to keep cash flowing with a system like this? (boohoo etc)

Re; offsetting the RCT against VAT...how do I go about this...does it need a visit to the tax office?

mkdon05

Lunch expenses are not allowable!!

From now on, you should not fill in the bank details on the Vat3 form. Just send in the return without a payment.
Then when you send in a C45 cert, attatch a letter with it asking the revenue to offset X amount to the vat period in question.

This way your cashflow is only down by the 35% RCT and not the vat amount also.

Depending on what revenue district you situated in, a refund can take between 2 and 4 weeks.
North City district are the most up to date at the minute and therefore the quickest.


You have to get it into your head that RCT tax has nothing to do with your VAT, income tax & prsi. These are all seperate issues that have to be dealt with individually.

kluivert

Mr. Milton Keyes has it spot on here OP.

RCT or Relevant Contractors Tax is applied to payments made between principal contractors and sub contractors.

The reason as explained above for RCT deduction is to ensure tax compliance within the Construction Industry. Meaning everytime time you send in the C45 (pink sheet) the Revenue keep a record of this so when you make your Income Tax return they will know what your sales should be at minimum, if there is a difference, it gets red flagged and you get audited.

RCT is not a tax in a sense because you get that money back. The only case you dont get it back is when you have other outstanding returns whether it is VAT, Income Tax, Capital Gains etc.

Sometimes the Revenue will use this money to offset it against the outstanding returns on file.

An important note for the OP. From September 2008, Sub Contractors do not charge VAT to the Prinicpal Contractor. Your Invoice to the Principal will not include VAT, so they dont reclaim it and you dont pay it over to the Revenue. This was annouced in the last budget.

On your Invoice to the Principal you will this have the Vat calculation but the RATE will be 0%.

The reason for this is that the Revenue think Subcontractors charging Vat to Principal Contractors is causing too much paper work. As I said your collecting the Vat and paying it to the Revenue, and the Principal is reclaiming it.

And to confirm, When you send in the C45 to your local tax office, you need to include a note stating what taxes you wish to offset the C45 against, it always helps to tell them which period, Jan Feb 08 Vat etc.

Wertz

mkdon05 wrote: »

Lunch expenses are not allowable!!

From now on, you should not fill in the bank details on the Vat3 form. Just send in the return without a payment.
Then when you send in a C45 cert, attatch a letter with it asking the revenue to offset X amount to the vat period in question.

This way your cashflow is only down by the 35% RCT and not the vat amount also.

Depending on what revenue district you situated in, a refund can take between 2 and 4 weeks.
North City district are the most up to date at the minute and therefore the quickest.


You have to get it into your head that RCT tax has nothing to do with your VAT, income tax & prsi. These are all seperate issues that have to be dealt with individually.

By lunch expenses I don't mean sauntering off down the bistro at lunchtime and spending 20 quid, or the occasional wrap/coffee...since I work about 80 miles away from home, I buy my food to do the week, allow about €6-8 per day for that lunch. To me it's a cost of doing business, along with diesel/tolls...if I was working close to home I'd go home and eat. I can't claim on that? Why? I always keep receipts to back it up (separate from any domestic food purchases) more for end of year tax than for bi-monthly VAT.
As a PAYE worker under the same conditions of work I was allowed something called 'subsistence', a payment of ~€50 p/w to cover travel/lunch costs....why as a self-employed person (earning not much more than PAYE wage when you account for annual holidays etc) am I not entitled to same?

WRT to RCT not being relevant to income tax/prsi (and obviously as I've discovered, VAT), you're saying that revenue deduct 35% just to make sure that you're being paid and that the guy you're working for is paying correct taxes?
2-4 weeks re-claim time, not so bad then, I'm in N Louth for what it's worth.

kluivert: thanks for the info on the change in subbie VAT, wasn't aware of that...when doing my own invoices up, it did occur to me that having to add it, the builder havign to charge it on and all the messing about paying retruns and reclaiming it was a bit of a waste of time...struck me it'd be better the principal just adding VAT to all their invoiced amounts to the client/end-user and that client paying the VAT which they ultimately do anyhow.


This whole sub-contracting/self employed malarkey isn't what it's cracked up to be...seems a lot of the construction industry is using it as a loophole to avoid paying people holiday/PRSI/pension entitlements and that there's not much anyone can do (if you want the work at the minute this is really the only way people will take you on).
Thanks for the help so far lads.

00kab00

If i am a sole trader and on c45, do i still have to charge vat.

Odats

00kab00 wrote: »

If i am a sole trader and on c45, do i still have to charge vat.

Under the new rules AFAIK if you are working for a principal contractor i.e. other builder/contractor, local authority/government agency etc you don't charge VAT on the invoice. You put on the invoice "VAT on this supply to be accounted for by the principal contractor".
If you are doing work for an ordinary Joe Soap you still charge VAT at 13.5%.