RCT Deduction Rates Explained for Irish Subcontractors

The figure on an invoice is not always the figure that reaches a subcontractor’s bank account. Under Relevant Contracts Tax, a principal contractor may be authorised to deduct tax before releasing payment.

That can be confusing, particularly for somebody completing their first contract in Ireland. A €5,000 invoice may result in a €5,000, €4,000 or €3,250 net payment, depending on the deduction authorisation issued by Revenue. The three possible RCT rates are 0%, 20% and 35%.

Understanding what those rates mean makes it easier to check payments, protect cash flow and spot incorrect contract details early.

RCT Is a Withholding System

RCT applies to relevant contracts in construction, forestry and meat processing. The principal contractor notifies Revenue about the contract and, before making a payment, submits the gross payment details.

Revenue then issues a deduction authorisation. This tells the principal how much tax to withhold from that particular payment. The principal does not choose the rate based on personal judgement, nor should the subcontractor simply deduct RCT from their own invoice.

The authorised amount is taken from the gross payment and the balance is paid to the subcontractor. Revenue credits RCT deducted to the subcontractor’s tax record, where it may be offset against relevant liabilities under Revenue’s procedures.

What the Three Rates Generally Indicate

The applicable rate is linked to the subcontractor’s tax compliance position.

0% RCT

A zero rate generally applies where the subcontractor has an up-to-date tax compliance record. No RCT is withheld from the notified payment, although the contract and payment still pass through the RCT system.

Zero does not mean the transaction can be ignored. The principal still needs the correct deduction authorisation before payment.

20% RCT

Twenty per cent is the standard rate and generally applies where the subcontractor’s record is substantially up to date. On a gross payment of €5,000, a 20% authorisation would mean €1,000 is withheld and €4,000 is paid to the subcontractor.

For a business with tight working capital, that difference deserves planning. Materials, fuel, insurance and wages may still need to be paid at their full cost.

35% RCT

The 35% rate can apply where a subcontractor has a poor compliance record or has not registered with Revenue. On a €5,000 gross payment, €1,750 would be withheld and the net payment would be €3,250.

This rate can create serious cash-flow pressure. A subcontractor who unexpectedly receives a 35% authorisation should review their ROS position and identify the underlying compliance issue rather than treating the deduction as a permanent feature of the contract.

Why Can an RCT Rate Change?

A rate used on an earlier job or payment is not guaranteed to continue. Revenue reviews the compliance position of subcontractors in the eRCT system. A change can arise after outstanding returns, payments or registration issues affect that position.

Revenue sends rate determinations through the ROS inbox. This is one reason subcontractors should monitor ROS rather than relying entirely on what a principal contractor tells them at payment time.

Once a compliance problem has been resolved, the subcontractor may be able to use the RCT self-review facility in ROS. Complex cases may need assistance from a tax adviser or direct contact with Revenue through the appropriate channel.

Check the Contract Confirmation Early

The subcontractor has a role before any invoice is issued. The principal needs the registered name, Tax Reference Number and suitable identity evidence to notify the contract.

Revenue then sends the subcontractor a contract confirmation. It should be checked against the real agreement. The name, work, project and other details need to make sense. An error discovered at the beginning is usually easier to correct than one uncovered after payment has been processed.

Subcontractors who engage their own subcontractors may also become principal contractors for that part of the work. In that situation, they take on separate RCT responsibilities rather than remaining only on the receiving side of the system.

Read the Deduction Details, Not Just the Bank Balance

Where RCT is withheld, the principal should provide the relevant deduction authorisation details. These show the gross payment, net payment, rate and tax deducted.

Compare those figures with the approved invoice and remittance. A lower bank payment is not enough information on its own.

Imagine an invoice for €8,000. A payment of €6,400 may be correct under a 20% authorisation. A payment of €6,300 requires an explanation, since the difference could involve a credit note, retention, disputed item or simple error. The RCT details allow the subcontractor to separate the tax deduction from other adjustments.

Keep Records by Contract and Payment

Good records make year-end work easier, but their immediate value is even greater. A subcontractor should retain contract confirmations, invoices, payment records and deduction details in a way that allows each transaction to be matched.

A useful check for every payment is:

• Was the correct contract used?
• Does the gross amount match the invoice or agreed payment?
• Is the deduction rate the one Revenue authorised?
• Does the net amount match the money received?
• Has any non-RCT adjustment been explained?

These checks can catch a problem while the project and payment are still fresh in everyone’s mind.

Clear Access Helps Both Sides

Well-run principal contractors do more than send a reduced payment and wait for a query. They keep contract and payment information orderly, provide deduction details and give subcontractors a clear point of contact.

Services providing RCT support for Irish contractors can help principals manage submissions while giving subcontractors a more organised way to view relevant contract and payment information. That clarity reduces routine calls and helps both parties understand what happened to each payment.

Treat a Surprising Rate as a Signal

An RCT deduction should never be ignored, but it should not automatically be treated as an error either. The rate comes from Revenue’s authorisation and reflects the subcontractor’s position in the system at that time.

A surprising rate is a prompt to check ROS, review outstanding compliance matters and confirm that the contract details are correct. Fast action may prevent the same issue from affecting later payments.

The basic principle is simple: know the gross amount, know the authorised rate and know the net amount due. With those three figures and clear records, a subcontractor can understand each payment and manage cash flow with fewer unwelcome surprises.