How RCT works for contractors and subcontractors

For construction companies, property developers and businesses who operate associate-type models, working with subcontractors often means dealing with Relevant Contracts Tax (RCT).

And, when you’re managing multiple subcontractors, sites and payments, there are plenty of opportunities for something to be missed. A contract may not be notified when work begins, a payment could be processed before the correct deduction authorisation is received, or an old RCT rate could be relied on without checking Revenue’s Online Service (ROS).

Those errors can lead to penalties for the principal contractor, which makes having the right process in place particularly important.

So, who needs to operate RCT, what needs to happen before a subcontractor is paid, and where are businesses most likely to get caught out?

Relevant Contracts Tax (RCT) – how this works for contractors and subcontractors

What is Relevant Contracts Tax (RCT)?

RCT is a withholding tax that applies to certain payments made by principal contractors to subcontractors in the construction, forestry and meat-processing industries. The current deduction rates are 0%, 20% and 35%, depending on the subcontractor’s compliance position with Revenue.

All RCT compliance, filing and payments are handled electronically through ROS.

Construction and its ancillary services are where many businesses encounter RCT, although the wider definition of construction specified by Revenue can catch work that a business may not immediately think of as construction. It is therefore worth checking the activity being carried out rather than relying on how the supplier or project is described.

Revenue also updated its guidance in February 2026 to provide further clarification on how RCT applies to mixed contracts, where a contract contains both construction and other elements.

Who is considered a principal contractor?

The definition goes further than a main building contractor employing trades on a construction site.

Revenue considers a business a principal contractor where it uses a subcontractor to carry out relevant construction, forestry or meat-processing activities on its behalf.

The definition also covers certain other businesses and bodies, including:

• Businesses connected with companies carrying out those activities.
• Local authorities, public utility societies and housing associations.
• Government Ministers and certain statutory bodies.
• Businesses carrying out gas, water, electricity or hydraulic power works.
• Businesses involved in the installation, alteration or repair of telecommunications systems.

There is an exception to be aware of. Revenue states that you are not a principal contractor where the only construction work you are involved in is on buildings or land for your own use or for the use of your employees. That may apply, for example, where you are developing on-site accommodation.

A subcontractor can also become a principal contractor. If your business is contracted to carry out relevant work and then subcontracts all or part of that work to another contractor, RCT can apply to that relationship too.

It is therefore worth considering the role your business plays in each contract, particularly where work is being subcontracted further down the chain.

What does a principal contractor actually need to do?

RCT follows a clear sequence from entering into the contract through to making the payment.

1. Notify Revenue when the contract is entered into

A principal contractor should notify Revenue immediately after entering into a relevant contract with a subcontractor.

Before submitting the notification, you must obtain and keep documentary evidence confirming the subcontractor’s identity. The notification includes details such as the subcontractor’s Tax Reference Number, the nature and location of the work, the estimated contract value and expected start and end dates.

It also includes a declaration that the arrangement is not a contract of employment.

The distinction between an employee and a subcontractor needs to be considered carefully. Revenue states that the principal contractor is responsible for deciding whether the contract is with an employee or a self-employed person. Incorrectly treating an employment relationship as an RCT contract can result in PAYE, PRSI and USC becoming due, as well as possible interest and penalties.

2. Notify Revenue before making a payment

Before paying the subcontractor, the principal contractor must notify Revenue through ROS of the gross payment amount and payment date.

Revenue then issues a deduction authorisation confirming how much RCT, if any, should be withheld. The payment must be made in accordance with that authorisation.

The payment notification must be submitted before the subcontractor is paid.

3. Check the deduction summary

Revenue uses the payment notifications submitted during the period to prepare a deduction summary. This covers one month for monthly filers or three months for quarterly filers.

The principal contractor should check that all payments are included and the amounts are correct. If they are, no further action is required and the deduction summary becomes the RCT return for that period.

Amendments can be made before the 23rd of the month. Any RCT deducted must also be paid to Revenue by the 23rd of the month following the return period.

How much RCT should be deducted?

Revenue determines the subcontractor’s rate based on their compliance record.

The three current rates are:

• 0% for an up-to-date tax compliance record
• 20% for a substantially up-to-date tax compliance record
• 35% for a poor compliance record or where the subcontractor has not registered with Revenue.

Revenue carries out rolling reviews of subcontractors’ compliance positions, so a rate can change. The principal contractor should follow the deduction authorisation issued by Revenue for the payment rather than relying on the rate applied to an earlier invoice.

Even where a subcontractor has a 0% rate, the principal still needs to submit the payment notification and receive a deduction authorisation.

Where do RCT errors tend to happen?

The easiest way to avoid RCT problems is to build the required checks into the contract and payment process. Leaving them until an invoice is ready for payment creates much less room to correct an issue.

A few areas deserve particular attention:

• Paying the subcontractor before checking ROS: Before making a payment, the principal contractor must submit the payment details to Revenue. Revenue then issues the deduction authorisation confirming the amount, if any, to withhold.
• Assuming a familiar subcontractor is still on the same rate: A subcontractor’s RCT rate can change following Revenue’s review of their compliance position. The current deduction authorisation should determine what happens with each payment.
• Missing work that falls within RCT: Revenue’s definition of construction activity is broad. Installation, repair, site preparation, landscaping and certain haulage activities are among the work that can fall within scope. Checking the work being carried out when the contract is agreed can prevent it being missed later.
• Getting employee and subcontractor status wrong: A contract notification requires a declaration that the arrangement is not a contract of employment. Revenue places responsibility on the principal contractor for deciding whether the person is an employee or self-employed, so this needs to be established before the contract is treated as RCT.
• Bringing finance into the process too late: The person processing an invoice may be seeing the subcontractor or contract for the first time. At that stage, the relevant contract should already have been considered for RCT and, where required, notified to Revenue. For construction and property businesses managing multiple sites and subcontractors, information therefore needs to reach the right people at the right time.

What happens if a payment isn’t reported correctly?

The cost of an RCT error can be high. Revenue treats a payment made outside the terms of a deduction authorisation as an unreported payment, with varying penalties applying depending on the subcontractor’s RCT status.

For example, an unreported €100,000 payment to a subcontractor with a 20% RCT rate could result in a €10,000 penalty. With larger contracts, or repeated errors across multiple subcontractors, those figures can add up quickly. Catching RCT at the contract and payment approval stage gives the business a much better chance of avoiding that situation.

How can businesses reduce RCT errors?

For businesses dealing with a high volume of subcontractors, a few controls can make RCT easier to manage:

• Check whether RCT applies when a new subcontractor or contract is set up.
• Notify relevant contracts promptly through ROS, with support from your accountant or payroll provider.
• Obtain and retain the required subcontractor identification.
• Include the ROS payment notification in the payment approval process.
• Review deduction summaries for missing or incorrect payments.
• Give clear responsibility to project, procurement and finance teams for each stage.

It is also worth reviewing the process when the business takes on new types of work, changes how subcontractors are engaged or begins operating across additional sites. A process that worked for a smaller number of contracts may need to change as the volume and complexity of subcontractor payments grows.

How can AAB help?

RCT can create a significant compliance workload for businesses managing multiple contracts, sites and subcontractors, particularly when different teams are involved at different stages.

At AAB, our Corporate Tax team can help you establish whether RCT applies, review how it is currently being managed and identify gaps that could lead to missed notifications, incorrect deductions or penalties.

If you have questions about your RCT obligations or would like to review your current process, please contact John Conway or your usual AAB contact.