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Paying VAT to sub-contractors

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  • 14-11-2010 7:42pm
    #1
    goz83
    Registered Users Posts: 8,034 ✭✭✭


    I'm very confused after looking at the revenue tax guide. As a contractor, apparently I am to reverse charge 35% VAT to any sub-contractor I use. So if I get in a plumber to connect a few pipes and tell him the job is worth say €100... am I to pay him €65 and pay the revenue €35? This can't be right! Can someone explain this? I am new in the business.

    I also have a sales rep on the road as an independent contractor. His contract specifies that he is responsible for his own taxes, as I was when I was working as an independent contractor. I pay him a cheque every week. Should I be accounting for tax in any way with this arrangement? The more I read about tax and VAT, the more questions I need to answer.


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    #2
    Victor
    Registered Users Posts: 78,282 ✭✭✭✭Victor


    If your subcontractor does €88.11 worth of work, you add VAT @ 13.5% making a total of €100. You then deduct 35% (€35) and pay that directly to Revenue. You need to be registered for relevant contracts tax (RCT) and issue the subcontractor with a certificate for the deduction. The subcontractor can then set of the €35 against his tax liabilities.

    I suspect the sales rep may be in a different situation as he isn't in construction.

    It may be worthwhile employing an accountant or book keeper, at least until you under stand the system well enough to run it yourself.

    See: http://www.revenue.ie/en/tax/rct/index.html


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    #3
    Alan Shore
    Registered Users Posts: 735 ✭✭✭Alan Shore


    Hi,

    There are 2 seperate issues here.

    RCT Relevant Contracts Tax. If you as a principle contractor in the Construction industry engage the services of a subcontractor eg a plumber and you do not hold a relevant payments card for that subcontracor (ie that subcontactor has a C2 and you have applied for the card) you have to retain 35% of the payment due to the subcontractor and remit it to the Collector General.

    Since Sept 08 the subcontractor does not charge you as a principle VAT so if the job is worth €100 you owe him €100 not €113.5 as it used to be.

    You also need to consider if your independent contractor is an employee. It is judged on the merits of each case not just because it says so in his contract. http://www.welfare.ie/EN/Publications/EmployedandSelfEmployedGuide/Pages/taxguide.aspx


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    #4
    MBateson
    Registered Users Posts: 169 ✭✭MBateson


    And confusingly, even though you won't be charged VAT by your subcontractor, you still need to account for it on your VAT return. You have to increase the T1 and T2 VAT figures on the return by 13.5% of what they charged you. These cancel out so there is no affect on the amount owed. Hope that makes sense.


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    #5
    goz83
    Registered Users Posts: 8,034 ✭✭✭goz83


    Alan Shore wrote: »
    Hi,

    There are 2 seperate issues here.

    RCT Relevant Contracts Tax. If you as a principle contractor in the Construction industry engage the services of a subcontractor eg a plumber and you do not hold a relevant payments card for that subcontracor (ie that subcontactor has a C2 and you have applied for the card) you have to retain 35% of the payment due to the subcontractor and remit it to the Collector General.

    Since Sept 08 the subcontractor does not charge you as a principle VAT so if the job is worth €100 you owe him €100 not €113.5 as it used to be.

    You also need to consider if your independent contractor is an employee. It is judged on the merits of each case not just because it says so in his contract. http://www.welfare.ie/EN/Publications/EmployedandSelfEmployedGuide/Pages/taxguide.aspx

    Wow, all that kinda sucks and makes it difficult to get sub-contractors for one off jobs. Regarding the sales rep; I considered the contract carefully and he is in full control of the hours he works, where he works and whether or not to use the materials supplied by the company. He therefore has almost full control< making him an independent contractor and not an employee. Thanks though for bringing that up.

    Can someone clarify if and how the sub-contractor can claim back some of the 35% lost/withheld. Especially if he is not VAT registered. For example, my father in-law helps us out with an odd job here and there, but he is not VAT registered. Would he be at a big loss here?


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    #6
    Alan Shore
    Registered Users Posts: 735 ✭✭✭Alan Shore


    If you register as a Principle contractor the Revenue will issue you with a number of RCTDCs (Relevant Contracts Tax Deduction Certificate) these are "Pink Slips" you issue this to the subcontractor when you are paying him, stating his name address and PPSN. He can then use this to recover the tax deducted.
    Again consider if he is an employee or self employed?


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    #7
    Legend100
    Registered Users Posts: 736 ✭✭✭Legend100


    yes the subcontractor reclaims the 35% in full.

    If he invoices you for one hundred euro, if he doesnt have a c2 and you dont have an payments card for him, you pay him 65 euro and give him a form RCTDC "pink slip" for 35 euro

    You then pay 35 euro to revenue and the subcontractor sends the pink slip to revenue and the revenue will offset any tax owing by trhe subcontractor with the 35 euro owing. if no tax is owing, the revenue will refund the 35 euro to the subby

    And the vat point is irrelevant as under the old system, you were paying the subby with vat and he was paying it over to revenue. now he doesnt charge you vat. you self account for it which means you pay the vat he would charge and claim a simultanous credit for the same amount leaving a vat neutral effect


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    #8
    Chevy RV
    Registered Users Posts: 466 ✭✭Chevy RV


    MBateson wrote: »
    And confusingly, even though you won't be charged VAT by your subcontractor, you still need to account for it on your VAT return. You have to increase the T1 and T2 VAT figures on the return by 13.5% of what they charged you. These cancel out so there is no affect on the amount owed. Hope that makes sense.

    Sorry for opening an oldie but.....

    Does anyone know hoe to increase the T1 & T2 VAT figures in Sage line 50?

    Your help would be much appreciated.

    Regards,


    Chevy Rv


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    #9
    Stratvs
    Registered Users Posts: 958 ✭✭✭Stratvs


    Deleted - sorry for some reason had thought this was about EU acquisitions. Must have been dreaming :o


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