The case I’ll talk about this week is RCT for a new company. RCT stands for relevant contracts tax. The tax applies to the construction, forestry, and meat processing industries. The government introduced RCT because of poor tax compliance in these industries. It’s an interesting and relevant area for clients and practitioners. I’ll talk about a recent case taken by a new company against the RCT rate Revenue gave them. Let’s go through
- Background
- Case taken
- Case for the taxpayer
- Case for Revenue
- Outcome
- Summary
Background
As some background, it’s well known that a subcontractor’s RCT rate will be 20% for the first 3 years in business. Joe Soap Ltd has a carpentry business, and they have a contract with Local Builder Ltd on a new housing estate. Joe Soap set up his new company in June 2024. The company invoices Local Builder Ltd on the 31st of June 2024 for €10,000. Before making the payment, Local Builder goes onto ROS to confirm it will pay Joe Soap Ltd €10,000. On ROS, Revenue confirms the RCT deduction rate is 20%.
| Invoice amount | €10,000 |
| RCT deduction rate 20% | (€2,000) |
| Net Payment to JS Ltd | €8,000 |
Local Builder Ltd deducts €2,000 from the payment and pays that to Revenue as part of their June 2024 RCT return. Joe Soap Ltd receives €8,000 and has €2,000 sitting with Revenue. It can use that €2,000 against VAT, Corporation Tax, and PAYE liabilities once those tax returns are filed.
Case Taken
In the tax appeals case taken, Joe Soap Ltd brought an appeal against Revenue’s 20% deduction rate. The company was looking for a 0% deduction rate. Revenue refused on the grounds that the company didn’t meet the requirements to get the 0% rate.
Joe set up his company in 2024. It registered for corporation tax, RCT, VAT, and PAYE from 1 June 2024. Joe registered for Income Tax from 1 January 2024. On the 16th of December 2024, Revenue notified Joe that the RCT deduction rate for the company was 20%. On the 4th of June 2025, Joe appealed against the 20% RCT rate to the Tax Appeals Commission. While the appeal was late, Revenue didn’t object to the commission allowing the appeal.
The hearing took place on the 19th of March 2026. The agent represented Joe Soap Ltd, which we will assume is the accountant. Counsel represented Revenue.
Case for the taxpayer.
The accountant gave a written submission to support the case for the taxpayer. Some comments by the accountant are worth mentioning as they give some insight.
“RCT is not a tax. It is a system of withholding a % of the trading receipts of a contractor to ensure that the contractor in question discharges his/her tax obligations. eg PAYE/VAT/Corporation tax/Income tax. Such deductions can be applied to discharge the above-noted taxes. If an excess of tax withheld remains after discharging the taxes, the overpayment cannot be refunded until the company’s corporation tax return is filed. As a corporation tax return is not due to be filed until the 9th month after the year-end, Revenue could potentially hold money not belonging to them for up to 21 months”
“Revenue operates this withholding system in real time, i.e., they control the deduction rate before the payment of a trading receipt by the customer and have real-time information on PAYE and VAT”
The accountant confirmed they had requested Revenue to reduce the deduction rate to 0%. The 20% rate was placing the taxpayer in an “impossible trading position” where it cannot pay debts as they fall due. Per the accountant
“All taxes have been filed and discharged on time (with the exception of the August 2025 VAT return, which was late due to illness). As at 17/10/2025, €12,473 is owed to the client”.
The accountant further added
“As the financial year progresses, the amount held unlawfully by Revenue will get bigger and bigger, until the company ceases trading because it cannot discharge its liabilities”
Discretionary rule
The accountant argued that the company Joe Soap Ltd met all its tax obligations on time, bar one VAT return. And that Joe had met all his tax obligations since becoming a proprietary director and for the 13 years before that. As a result, the company sought to rely on a discretionary rule in the Taxes Act. That rule gave Revenue discretion to reduce the 20% deduction rate to 0% once the taxpayer met all their tax obligations.
Case for Revenue
Revenue confirmed that the taxpayer filed VAT returns for May/June, Sept/Oct, and Nov/Dec 24 late. The tax legislation requires a subcontractor to fulfil all their tax obligations on time over the previous three-year period. The taxpayer hadn’t traded for the required 3 years, so couldn’t meet this rule.
Revenue also confirmed they reviewed the taxpayer’s circumstances on several occasions. And they were not satisfied that it should apply the 0% rate. One of the reasons for that was the late filing of VAT returns by the taxpayer. It turns out that between May 2024 and December 2025, the taxpayer filed its VAT returns after the due date 8 times.
Outcome
When reading through the case, the outcome becomes pretty clear early on. The Commissioner mentions the usual Menolly Homes case where
“The burden of proof in this appeal process is, as in all taxation appeals, on the taxpayer”
Firstly, the Commissioner confirmed that the taxpayer was on the standard rate of RCT of 20%. This was on the basis that it had not complied with all its tax obligations throughout the previous 3 years. This aggrieves the taxpayer as it hasn’t been in business for 3 years. It also seeks Revenue to apply the discretion available to it to impose the 0% rate.
The Commissioner confirms that the starting rate for a subcontractor is the 20% rate, being the “standard rate”. As a result, the 0% rate is a relieving provision. The Commissioner also confirms that the taxpayer must have a 3-year compliance record to avail of the 0% rate. Therefore,
“If a subcontractor cannot demonstrate such a record because it has not been established for at least 3 years, it is not entitled to the zero rate”
Vat Returns
Revenue submitted a table of VAT returns for the taxpayer as follows
| VAT 3 Return | Due Date | Due date extension for ROS | Date Filed |
| May/June 24 | 19/07/24 | 23/07/24 | 05/09/24 |
| July/Aug 24 | 19/09/24 | 23/09/24 | 24/09/24 |
| Sept/Oct 24 | 19/11/24 | 23/11/24 | 27/11/24 |
| Nov/Dec 24 | 19/01/25 | 23/01/25 | 29/01/25 |
| Jan/Feb 25 | 19/03/25 | 23/03/25 | 18/03/25 |
| Mar/Apr 25 | 19/05/25 | 23/05/25 | 22/05/25 |
| May/June 25 | 19/07/25 | 23/07/25 | 29/07/25 |
| July/Aug 25 | 19/09/25 | 23/09/25 | 24/10/25 |
| Sept/Oct 25 | 19/11/25 | 23/11/25 | 01/12/25 |
| Nov/Dec 25 | 19/01/26 | 23/01/26 | 30/01/26 |
As you can see they filed 8 of the VAT returns late.
Resulting from the late filing of VAT returns the Commissioner finds that the taxpayer isn’t entitled to the 0% rate. This is the case even if it was able to show a 3-year compliance record. The Commissioner, while not having the power to rule on the Revenue discretionary provision, commented that
“He would find that the taxpayer was not entitled to the zero rate on a discretionary basis, in circumstances where it failed to submit its VAT returns by the due date on a number of occasions”
So, no joy for Joe Soap Ltd and Revenue was correct to apply the 20% rate.
Summary
The case highlighted how RCT was a huge negative for the taxpayer. Revenue had €12,500 of its cash in RCT, and it couldn’t get this back until it filed a corporation tax return. It gives clarity to subcontractors as a starting point. You will be on the 20% standard rate of RCT for the first 3 years. If you are not trading for 3 years and need to go on the 0% rate, then you’ll have to show a very strong compliance record. Even at that, the granting of the 0% rate is at the discretion of Revenue.
The Revenue guidance in their Tax & Duty manual confirms the discretion available
” the system automatically grants a rate of 20% as a three-year compliance history does not exist. However, this may be changed to zero if the subcontractor satisfies Revenue that in the circumstances the three-year compliance period ought to be disregarded. The rate of deduction should be reviewed periodically by caseworkers and, if a subcontractor who has been allocated the 20% rate meets the necessary conditions, the deduction rate should be adjusted to zero”
I would also urge caution here as if the compliance record is very poor the RCT deduction rate can increase to 35%.
For subcontractors, it shows that by investing in your bookkeeping can get more money into your bank account. It shows the value of strong compliance. Getting your money that is resting in Revenue’s account into your company account. Think of what you can do with that extra money.
Do you want help getting your company taxes sorted? If so, start here
