Change in Revenue Treatment of a Board of Management for School Building Projects
02 February 2012
Category: Legal Articles
If you are commencing a school building project (including emergency works, summer works, additional accommodation or major buildings and extensions), the board of management need to be aware of and ensure compliance with this recent legislative change which came into effect on 1 January 2012. Section 20 of the Finance Act 2011 inserted new provisions into the Taxes Consolidation Act, under which new regulations have been issued. This legislation will affect the tax treatment of the board of management for school building projects and payments made to contractors. There are penalties and surcharges for non-compliance so it is vital that the legislation is properly complied with.
What is it?
The changes relate to the operation of Relevant Contracts Tax (RCT) which is a tax regime applicable to construction contracts in which tax is deducted from payments for construction operations due to the contractor by the principal contractor. RCT usually applies to main contractors in their dealings with sub-contractors. However, the Revenue has recently indicated that a school board of management, being a body established by statute and funded wholly or mainly out of moneys provided by the Oireachtas, is a “Principal Contractor”. This means that the board of management will be responsible for complying with RCT requirements and VAT returns when making payments to the contractor. The Revenue introduced a mandatory electronic RCT system on 1 January 2012 for all principal contractors in the RCT system, so all filings and notifications must be done online through the Revenue ROS system.
How does it operate?
The board of management is the Client/ Employer under the building contract. As such, the board is the “Principal Contractor” for the purposes of this legislation. The board of management will therefore be responsible for notifying the contract to the Revenue prior to commencement of construction, notifying each payment to the Revenue prior to making payment to the Contractor and paying the RCT deducted (if any) to the Revenue. The board must ensure that it obtains a Deduction Authorisation from the Revenue before any payment is made to the contractor. This will specify the rate of tax (there are three rates: zero %, 20% and 35%) to be deducted from the contractor.
The “reverse charge” VAT mechanism also applies to contracts subject to RCT. Therefore, the board of management will have to register for VAT, account for VAT on all payments made to the contractor and will be required to make bi-monthly VAT returns. The contractor will invoice the board on a VAT exclusive basis so the board must apply to the DoES for funding to cover both the amount stated on the invoice and the VAT which will be paid to the Revenue on the bi-monthly VAT return.
What does the board of management have to do?
As soon as possible in the process (preferably at design stage) the board should write to its local Revenue district seeking confirmation if the board is to be treated as a “Principal Contractor” for the contract. If the answer is yes then the board must:
- Register online for ROS (Revenue Online Service).
- Register for VAT and as a Main Contractor
- Obtain contractor’s tax reference number and proof of identity
- Prior to commencement of construction, notify the Revenue of the contract (Contract Notification)
- Prior to discharging any payment to the contractor, notify the Revenue of the payment (Payment Notification)
- Obtain a Deduction Authorisation from the Revenue specifying the tax to be deducted from the contractor
- Provide the contractor a copy of the deduction Authorisation
- Deduct the applicable amount of tax from payments due to the contractor
- File RCT returns and pay the deducted amount to the Revenue
- Apply to the DoES for the VAT inclusive amount of each payment due to the contractor notwithstanding that the invoice received will be on a VAT exclusive basis
- File monthly VAT returns and pay the VAT to the Revenue
- Obtain and keep a Deduction Summary – Periodic Return at the end of each return period