17 December, 2020
Renewable energy companies involved in the production of electricity are within the scope of Relevant Contracts Tax (RCT). Given the broad scope of RCT, and the severe penalties that can arise for non-compliance, it is important that companies operating in this sector are aware of their RCT obligations and have adequate controls and processes in place to manage compliance.
Relevant Contracts Tax is a withholding tax that applies on payments made to subcontractors for certain works, and includes water, electrical or hydraulic power undertakings and related activities. There are three deduction rates, 0%, 20% and 35%, with the rate dependent on the tax compliance position of the contractor engaged.
Companies involved in the production of electricity have an obligation to operate RCT on payments to subcontractors for certain works, known as 'relevant operations'. The range of works within the scope of RCT is very broad and includes the construction of wind farms, solar farms and other renewable energy plants, contracts for the repair and maintenance of such farms and plants, as well as works which are preparatory to or for rendering complete such construction or repair works.
This brings in a wide range of onshore and offshore works including site preparation works, supply and install contracts, erection of scaffolding, site clearance works, waste management, drilling works, haulage of materials for use in construction operations.
As such, it is necessary to review all contracts with third parties to ascertain the contracts within the scope of RCT.
Failure to operate RCT can result in costly tax settlements. In our experience, most penalties for RCT non-compliance for companies operating within the renewable energy sector have stemmed from a lack of knowledge of RCT and when it should apply, such as:
RCT continues to be an area of focus by Revenue and companies who do not comply with the RCT procedures can face costly RCT settlements. Given the costly consequences of getting things wrong, it is important that the relevant stakeholders within the organisation have the knowledge of RCT and that there are appropriate system controls in place to manage RCT.
If you are a subcontractor operating in the renewable energy sector, what should you consider?
Our RCT team has extensive knowledge of the issues facing both principal contractors and subcontractors operating in the renewable sector. We can provide a wide range of RCT support including managing Revenue Audits, carrying out health checks, making 0% rate RCT applications and operation of Revenue's eRCT system. We also have significant experience in delivering RCT training sessions to clients, so that you have the skills you need to address RCT issues and reduce the risk of future errors. If you would like to ensure that your business is RCT compliant, contact us today.