Processing in Sage 50 for the Construction Industry in Ireland
In the construction industry in Ireland, there are two schemes run by Revenue to collect taxes
- Relevant Contracts Tax (RCT) and
- VAT reverse charge
For both of these schemes to apply there are specific criteria that must be present and exact definitions are available on the Revenue website, but basically there must be a principal contractor and a subcontractor engaged in a relevant contract to carry out construction operations. Either or both of these schemes could apply to any given contract eg. a subcontractors invoice could be processed using Reverse charge VAT (T20 in Sage) and RCT at 35% could be deducted from the subcontractors payment and remitted to revenue on their behalf. Below is an overview of each:
Relevant Contracts Tax (RCT)
RCT is a withholding tax that applies to certain payments by principal contractors to subcontractors in the construction, forestry and meat-processing industries. The rates of tax are 0%, 20% and 35% and will depend on the subcontractor’s compliance record with revenue. All RCT transactions are submitted through the Revenue Online System (ROS).
Further Information from https://www.revenue.ie/en/self-assessment-and-self-employment/rct/index.aspx
VAT reverse charge
Value Added Tax (VAT) is normally charged by the person supplying the goods or services. However, under RCT, the person receiving the goods or services (the principal contractor) calculates VAT and pays it directly to Revenue. The principal contractor accounts for VAT as if they had supplied the service. This is known as VAT reverse charge. It applies to subcontractors involved in the construction industry only.
Follow instructions below to process either or both In Sage 50.
- You must first find out if you will need to deduct RCT for this subcontractor and at what rate 0%, 20% or 35%. If RCT is to be deducted follow instructions below for RCT and
- Find out if VAT reverse charge applies. If yes follow instructions below for VAT reverse charge.
Relevant Contractor Tax (RCT)
If you are the principal contractor SKB 41915
If you are the subcontractor SKB 41916
VAT Reverse Charge
If you are the principal contractor
If VAT reverse charge applies then you will receive a VAT invoice from the subcontractor showing nil VAT and a statement on it saying that VAT will be accounted for by the principal contractor. You must then use tax code T20 Reverse Charge when processing the subcontractors invoice in sage and this will post both a sales VAT and purchase VAT on the VAT return. Ensure T20 vat code is set up correctly with reference to the correct rate (usually 13.5%). VAT is applied to the full net amount of the invoice prior to any RCT deductions.
If you are the subcontractor
If VAT reverse charge applies then you should generate a VAT invoice for the principal contractor showing nil VAT and a statement on it saying that VAT will be accounted for by the principal contractor.
In Sage this sales invoice should be processed using tax code T20. This will put the net value of the sale in the Information only box at the bottom of the VAT return called – Total value of sales, excluding VAT. Using T20 on the sales invoice also prompts the sage standard invoice layouts to insert a narrative on the invoice to say that the VAT is accounted for by the customer as is the requirements under the reverse charge VAT rules.