A Guide to Avoiding the Most Common RCT & VAT Pitfalls for Non-Resident Principal Contractors

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An area that has continued to cause challenges and risks for businesses is the operation of Relevant Contracts Tax (RCT) and VAT.

The most common mistakes we see being made in this sector are by non-resident principal contractors who engage a subcontractor to carry out construction works in Ireland.

This article will focus on the most common pitfalls that we see occurring within this sector by non-resident principal contractors and the steps that can be taken to avoid making costly mistakes.

1. Compliance Obligations for Non-Resident Principal Contractors

When a non-resident principal contractor engages a subcontractor to carry out construction works in Ireland, the RCT system must be applied to payments made to the subcontractor.

The first potential pitfall for a non-resident principal contractor is not taking the reasonable care to familiarise themselves with their tax obligations under the RCT regime. In such a case, the non-resident principal contractor will eventually be contacted by Revenue, informing them of their failure to operate the RCT regime. This usually occurs following the commencement of the works in Ireland, at which point the mistakes have already been made and costly penalties can be imposed by Revenue.

As such, it is very important that a non-resident principal contractor is aware of their tax obligations prior to the commencement of any construction works in Ireland so that the necessary administrative steps can be taken to ensure that they are set up for the RCT system and fully compliant in operating RCT on payments to subcontractors.

The administrative steps to be taken by a non-resident principal contractor include registering for RCT on Revenue’s Online Service (ROS) and operating the RCT regime throughout the duration of the project in Ireland (further detail on this below).

2. Operation of the RCT System

Once a principal contractor is registered for RCT with Revenue, there are a number of steps that must be taken each time a principal contractor enters into a relevant contract with a subcontractor and each time a payment is made to the subcontractor. These steps are summarised as follows:

a. Contract Notification

  • The first step is to input a “Contract Notification” through Revenue’s online RCT system. A principal contractor must notify Revenue each time it enters into a new relevant contract with a subcontractor. The Principal will then receive a contract reference number and an indication of the applicable RCT deduction rate for the subcontractor.

b. Payment Notification

  • Before making a payment to a subcontractor, the principal must notify Revenue’s online eRCT system of the intention to make the payment and provide details to Revenue of the gross amount to be paid. This process is known as “Payment Notification”. This must be done for each payment made to the subcontractor.

c. Deduction Authorisation

  • Revenue will issue a deduction authorisation to the principle contractor which will specify the rate and amount of tax to be deducted from the payment to the subcontractor. This process is known as “Deduction Authorisation”. The principle is required to provide a copy of this authorisation to the subcontractor.

d. Deduction Summary (RCT Return)

  • Revenue’s eRCT system prepares a pre-populated period end return known as a “Deduction Summary (i.e. RCT Return)”, which is based on the deduction authorisations issued during the period. The due date for payment of the RCT withheld is the 23rd day after the end of the period covered by the return.

The most common pitfall we see occurring in practice are inconsistencies in notifying Revenue of each and every payment made to a subcontractor by the principal contractor. This can be a costly mistake for the principal contractor as the penalties Revenue can impose for failure to operate the RCT system in this way range between 3% to 35%, depending on the RCT deduction rate applicable to the subcontractor.

To put this into perspective, if a subcontractor has been assigned a 35% RCT deduction rate and the principal contractor makes a payment of €25,000 to the subcontractor without first notifying Revenue of the payment and deducting the appropiate withholding tax, Revenue can impose a penalty of €8,750 (i.e. 35% of the invoice value) on the principal contractor for its failure to operate the RCT system.

These penalties can become very costly for a business where they fail to operate the RCT system on high value invoices.

3. Operation of RCT and Reverse Charge VAT

Typically, VAT is normally charged by the person supplying the goods or services. However, under the RCT regime, the person receiving the goods or services (the principal contractor) calculates the VAT due on the invoice from the subcontractor and pays it directly to Revenue. This is referred to as Reverse Charge VAT and it is common area in which mistakes are made by non-resident principal contractors.

The following should occur when a subcontractor invoices a principal contractor for construction services that are subject to RCT:

  1. The subcontractor raises an VAT invoice with the zero rate of VAT applied;
  2. The invoice should include the VAT registration number of the principal contractor and include the narrative “VAT on this supply to be accounted for by the principal contractor”;
  3. The principal contractor calculates the VAT due on the invoice value and records it as VAT on sales (Box T1) on its VAT return. Where it is entitled to do so, the principal contractor can claim a simultaneous VAT input credit (Box T2) on the VAT return, thus resulting in a VAT neutral position.

Although the RCT system can seem like a heavy administrative burden on a business, it can be managed relatively smoothly with the proper administration. Our tax specialists look after all administrative issues regarding RCT, provide effective advice and answer questions you may have regarding RCT.

Should you require any assistance, please contact us.

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Crowleys DFK Awarded Excellence in Public Sector Services Award 2021

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For a consecutive year, Crowleys DFK has been named the outright category winner of Excellence in Public Sector Services Award by The Public Sector Magazine’s 2021 Excellence in Business Awards.

Public Sector Services Award 2021

The awarding committee deemed Crowleys DFK worthy recipients of the Excellence in Business Award for our consistent high-quality services to the public sector.

Vincent Teo, Head of Public Sector Services commented:

“Winning this award once is a great achievement, but to win for a second year in a row is a testament to the hard work and commitment of our dedicated Public Sector teams. We are very proud of the reputation and long-term relationships we have built with our public sector clients over the years and this recognition from our peers and clients is a great honor.”

Click here to read the full Public Sector Magazine award editorial, featuring commentary from Vincent.

About the award

The annual awards recognise excellence in key providers to the Irish Public Sector acknowledging the professionalism of companies that excel in what they do.

Each year The Public Sector Magazine invites public sector agencies and local authorities to nominate organisations for consideration.  Nominees are judged by a panel of experts drawn from previous award winners and representatives from a diversity of sectors. The top three scoring nominations in each category are shortlisted with the highest scoring nomination as the winner.

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DPC publishes Guidance and Report on the Use of Cookies and Other Tracking Technologies

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On the 6th April, the DPC issued a Guidance Note (GN) on Cookies and other tracking technologies. This Guidance note follows an examination by the DPC of the use of cookies and other similar technologies on a selection of websites across a range of sectors. The DPC will allow a period of 6 months from the publication of the guidance for controllers to bring their products, including websites and mobile apps, into compliance, after which enforcement action will commence.

ePrivacy Regulations and GDPR

The GN outlines the requirements under the ePrivacy Regulations 2011 and GDPR for the use of cookies and other tracking devices for the processing of personal data, including the law on cookies and it’s purpose, requirements for consent, provision of “clear and comprehensive information” about the use of cookies and the requirements for cookie banners.

Third Party Processors

Consideration is also given to the need to assess relationships with third parties whose assets are deployed on a website, for instance the use of “like buttons”, plugins, widgets, pixel trackers or social media sharing tools. There is a requirement to be aware of the information that is collected and disclosed to these third parties, in particular engaging a third party to process payments where a controller-processor contract will need to be in place with that organisation to meet the requirements of Art 28(3) of the GDPR.

Record of Processing Activities

It is important to note that it is not necessary that a cookie contain personal data in order that the user’s consent be required to set it. Under Art 30 of the GDPR, there is a requirement to maintain a comprehensive record of each specific type of processing as part of your record of processing activities, which includes processing relating to cookies and other tracking technologies.

Special Categories of Personal Data

If your organisation is processing special categories of personal data through information derived from cookies, this is subject to stricter rules under Art 9 of the GDPR. The only legal basis your organisation is likely to have for the processing of any special category data derived from the use of cookies or other tracking technologies is the explicit consent of those individuals whose data you are processing.

Storage Limitation Principle

The DPC also noted that the lifespan of a cookie should be proportionate to its function. This is in line with the storage limitation principle under the GDPR. Organisations should check their current practices and make the necessary changes to comply with this principle.

Location Tracking

The GN also outlines the requirements regarding the use of cookies and other technologies to track the location of a user i.e. the need for consent. The Court of Justice of the EU recognised the sensitivity of location data because it can be used to derive very precise information about individuals and their behaviour, including daily movements and activities, places of residence, social relationships and the social environments they frequent.

Now that the DPC has issued guidance, organisations should ensure that their approach is compliant.

Our Data Protection Support Services team can assist you in implementing a successful data protection programme, achieving and maintaining compliance with EU data protection requirements while delivering security, productivity, risk management and cost-efficiency benefits. View our GDPR Service Offering for more information.

To read the guidance note, click below:

For a summary of the DPC findings and recommendations, see report below:

 

 

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eWorking Tax Relief

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With the recent outbreak of COVID-19, employees throughout the country have been asked to work from home. While these are challenging times for both employers and employees, Revenue offer a measure of relief for employers and employees who are engaged in “eWorking”. Revenue have today confirmed in their eBrief No. 045/20 that the current Government recommendations for employees to work from home as a result of COVID-10 meet the conditions for the “eWorking” tax relief.

Revenue define eWorking as where an employee works:

  • at home on a full or part-time basis
  • part of the time at home and the remainder in the normal place of work

eWorking involves:

  • logging onto a work computer remotely
  • sending and receiving email, data or files remotely
  • developing ideas, products and services remotely.

Employers can make a payment of €3.20 per workday to an employee who is working from home without deducting PAYE, PRSI or USC. This payment is to cover expenses such as heating, electricity and broadband costs. Amounts paid in excess of €3.20 are subject to tax as normal. Records of payments made must be retained by the employer for the purpose of any potential future Revenue compliance intervention.

In addition, where employers provide any of the following equipment to their employees, no benefit-in-kind arises as long as it is primarily for business use:

  • computer, laptop or computer equipment (eg. printers, scanners)
  • software to allow you to work from home
  • telephone, mobile and broadband
  • office furniture.

There is no obligation on employers to make this payment. If employers do not make this payment, employees can instead make a claim online at the end of the year by filing a tax return. Employees are not entitled to claim the round sum of €3.20. They are entitled to claim for vouched expenses that are incurred wholly, exclusively and necessarily in the performance of their duties of the employment. For most office workers this would be their home heating and electricity costs.

Any reimbursement of these expenses that has already been paid by the employer should be deducted from the claim amount. While receipts are not required to file the return, Revenue can request these for a period of up to six years after the year in which the claim relates, so employees should always keep a record of these.

In the case of utility bills, Revenue have advised that they are willing to accept that the average proportion of the house attributable to a home office is 10%. Therefore, for every day an employee works at home as a result of the current Government recommendations, they are able to make a claim for 10% of the utility bills for that day.

It is important to note that outside of the current Government recommendations regarding working from home, the eWorking relief does not apply to workers who bring work home outside of normal working hours, ie. evenings and weekends.

If any further information is required or if you have questions on the above, please don’t hesitate to contact our dedicated COVID-19 Client Response Team or our Tax Department.

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Crowleys DFK Awarded Excellence in Public Sector Services

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Excellence in Public Sector Services

We are delighted to have been awarded the Public Sector Magazine’s Excellence in Public Sector Services Award 2020 for our “consistent high-quality services to the public sector”. 

“It is great to be recognised for our work in the Public Sector. Last year we strengthened our Public Sector Department even further by adding another Partner, David Coombes, to our team. This strong leadership has helped ensure that we deliver a seamless and consistent service to our public sector clients.”  commented Vincent Teo, Head of Public Sector Services. 

For more information on our Public Sector Services, please get in touch.  

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The Role of the Company Secretary

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Section 129(1) of the Companies Act 2014 requires every company in Ireland to have a company secretary. Outlined below is a short description of the role of the company secretary followed by a brief introduction into a company secretary’s duties and obligations.

A company secretary is an officer of a company. The company secretary may also act as a director of the same company, but not act in dual capacity when signing documents on behalf of the company. The role differs from that of a Director of a company, in that the role focuses on tasks delegated by the board of the company.

A day in the life of a company secretary

The tasks for a company secretary can be varied. While the role of the company secretary predominantly consists of tasks delegated by the board of directors, the role of the company secretary goes beyond effectively and, efficiency communicating decisions of the board to the relevant bodies and may take on a much more advisory role within a company.

Often the role of the company secretary can consist of advising companies and boards on the best practices of corporate governance. Corporate governance embodies a wide variety of concepts and guidelines from the leadership involved to achieve a well-functioning board of directors, effectiveness of the board, accountability of officers of a company, inducting new directors and advising them on the board dynamics, remuneration and the importance of maintaining a transparent, functioning rapport with both the stakeholders and shareholders of company through effective general meetings. Thus, it is often the task of a company secretary to ensure that the directors of a company discharge their obligations in accordance with the Companies Act 2014.

A company secretary must also fulfil the more unsung tasks with regards to maintaining statutory registers coupled with the onerous task of attending board meetings in order to preserve and effectively record the minutes of that meeting.

It is important to note that while a company secretary doesn’t have as many codified duties as a director in terms of their common law and fiduciary duties, the role of a company secretary amounts to an officer of a company and thus is still subject to sanctions under the 2014 Companies Act.

In short, the day to day life of a company secretary depends on the need of a company and its board – whether it’s relaying the decisions of a board of the directors to the Companies Registration Office by registering changes in the boards structure, advising the board on a pressing corporate governance issue, attending board meetings or engaging with stakeholders or shareholders with regards to a general meeting or corporate event such as dividends.

For further information on the role of the company secretary, please contact Emma Dunne, Manager of our Corporate Compliance Department.

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Board Meetings and Minute Taking – What needs to be done?

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Section 160-166 of the Companies Act 2014 (“the Act”) governs both board meetings and committee meetings by laying down guidelines, that can be amended or omitted from a company’s constitution and mandatory provisions, that must be adhered to. For the purpose of this article, board meetings will be the main point of discussion.

Every director is entitled to reasonable notice of the meeting, a meeting can be called by a director alone or by a company secretary at the requisition of a director. The quorum necessary for the transaction of business is fixed as 2 directors. However, where there is a sole director, one director is accepted to meet the requirements of a quorum. A Chairperson of a board meeting can be fixed for a specific period. However if the chosen Chairperson is not present and a period of 15 minutes has elapsed, the directors may choose one of their own to chair the meeting. The majority of votes may pass a resolution. If there is an equal vote, the Chairperson shall be the casting vote.

Section 161 provides for the option to pass a written resolution signed by all the relevant directors (i.e. directors who are entitled to notice of the meeting) in lieu of a board meeting. This has the same effect as physically holding the board meeting with the directors. This section also stipulates the manner in which a board meeting can be held and extends the scope of what it means to attend a board meeting through electronic communication. The section also provides a guide for the location of the board meetings, subject to the company’s constitution:

  • Where the largest group of those participating are assembled
  • If no such group exists, the next suitable location is the where the chairperson is
  • If neither of the above apply, then it falls to any such place that the meeting decides

The Act also covers the requirements for minute taking of the board minutes in section 166. The accurate and efficient recording, drafting and maintenance of minute taking is imperative to ensure administrative compliance. Section 166(1) states that minutes must be maintained for the following purposes:

  • All appointments of officers made by directors
  • The names of all the directors present at each meeting of its directors
  • All resolutions and proceedings at all meetings of its directors

Typically the Chairperson, once approved by the board, signs the minutes at the following board meeting. The board minutes can also be subject to inspection by the Director of Corporate Enforcement. If a company fails to comply with the Director of Corporate Enforcement regarding the request of the company’s minutes, the company and any officer in default shall be guilty of a category 4 offence, i.e. a fine not exceeding €5,000.

For further information, please contact Emma Dunne, Manager of our Corporate Compliance Department.

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The Registration of Business Names Act 1963

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The Registration of Business Names Act 1963 (“the Act”) requires individuals, partnerships and body corporates, who wish to trade under a name that differs from their true name, to register that business name with the Companies Registration Office (the “CRO”). The purpose behind the act reflects the position that the legislation doesn’t allow businesses to hide their true name and thus run the risk of defrauding their consumers.

When does a business name need to be registered?
  • Where an individual uses a business name which differs in any way from their surname.
  • Where a partnership uses a business name which differs in any way from the true names of all the partners who are individuals.
  • Where a company uses a business name which differs from its corporate name.
  • Where a person having a place of business in Ireland carries on the business of publishing a newspaper.
Please note the following:
  • The chosen name for the registered business is not final until approved by the Companies Registration Office.
  • Only residents in the Republic of Ireland can register a business name as a sole trader. If you are not a resident in the Republic of Ireland, a letter of business permission form would need to be sent to the Department of Justice.
  • Registering a business name does not protect the name from being used by someone else – as a company name registration would. There can be multiples of one business name in the Republic of Ireland.
  • A registered business name does not automatically mean the name will be an appropriate and acceptable company name due to their different requirements.
Where does a registered business name need to be displayed?
  • When the certification of registration is granted by the Companies Registration Office, a copy of the certification must be displayed in a noticeable position in the business. If there are multiple locations it would need to be displayed in the prominent place of business along with every branch office, or place where the business is carried out.
  • A company needs to show its registered business name on all corporate documents e.g. letter headings, stationary, resolutions etc.
  • If the business is a body corporate, additional information needs to be disclosed on documents such as the full name of the company, the registered number and the address of the registered office.
Sanctions for a breach of the Act

Section 11 of the Act requires a body corporate or a person to disclose their true name on business documentation, failure to do so can result in a summary conviction.

For assistance in registering your business name, please contact Emma Dunne, Manager of our Corporate Compliance Department.

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Data Breach Trends Identified in First Year of GDPR

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The Data Protection Commission have published an information note on data breach trends identified by their Breach Assessment Unit in the first year of GDPR.

Some of the trends and issues identified by the Breach Assessment Unit include:

  • Late notifications;
  • Difficulty in assessing risk ratings;
  • Failure to communicate the breach to data subjects;
  • Repeat breach notifications; and
  • Inadequate reporting.

You can view the full information note here.

At Crowleys DFK, we are dedicated to helping you achieve GDPR compliance. Our Data Protection Support Services’ team offer the following services:

  • Preparing a Gap Analysis between current practices and those required under the current legislation and regulation.
  • Ensuring Data Protection, Records Management and Retention Policies and Procedures are in line with current legislation and regulations.
  • Conducting Data Mapping exercise.
  • Developing Privacy Notices/Disclosures for your organisation.
  • Determining if a Data Protection Impact Assessment is required by your firm and provide assistance in implementing.
  • Providing support to your appointed Data Protection Officer/Privacy Officer and ensuring their roles and responsibilities fully include the requirements under the GDPR.
  • Providing GDPR workshops/training to Board members and staff.

For assistance or advice on Data Protection, please contact us.

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Government issue Cloud Computing Advice Note for Public Service Organisations

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Cloud Computing Advice Note Public Service Organisations Crowleys DFK Xero Cloud Accounting

In October 2019, the Department of Public Expenditure and Reform published the Government’s Cloud Computing Advice Note. The Note sets out the Government’s view that public service organisations must now take a more proactive and progressive approach to embracing cloud computing.

Specifically, public service organisations are encouraged to take a “cloud-first” approach for all new systems. Likewise, they are encouraged to review all existing systems for cloud capability.

Crowleys DFK have recently been awarded a Platinum Partner status by Xero, a leading cloud accounting software. This recognition confirms that our cloud accounting offerings to our clients is accredited to the highest level.  We are best placed to offer public and private sector clients of all sizes in implementing cloud accounting solutions for their business.

Our team of cloud accounting experts provide the following services:

  • Identify the most appropriate accounting system for your business.
  • Implement the chosen solution for you, tailoring it to your unique requirements.
  • Provide ongoing training and support to you and your staff.

For assistance or advice on cloud accounting, please contact David Coombes, Partner, Public Sector & Government Services.

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