RCT and the construction reverse charge: invoicing as a subcontractor

In Irish construction, two rules shape a subcontractor's invoice: Relevant Contracts Tax (RCT), which the principal contractor deducts from what it pays you, and the VAT reverse charge, which moves the VAT to the principal.

The reverse charge

The free Irish invoice generator has a supply type for it: choose "Construction — principal contractor".

When you're VAT-registered and supply construction services to a principal contractor under RCT, the principal accounts for the VAT, not you. Your invoice:

• shows no VAT rate and no VAT amount;
• shows the principal contractor's VAT number, as well as yours;
• carries the words "VAT on this supply to be accounted for by the principal contractor";
• otherwise has every particular of a VAT invoice, and is due within 15 days of the end of the month of supply.

The principal works out the VAT — usually 13.5% for construction services — and pays and reclaims it on its own return.

RCT

The principal contractor deducts RCT from each payment and pays it to Revenue. The rate is on the deduction authorisation Revenue sends the principal:

RCT applies to the whole payment, labour and materials, before VAT. That's the key difference from the UK's CIS.

A worked example

You fit out an office for a principal contractor: €10,000 of labour and €2,000 of materials, at 20% RCT, under the reverse charge.

• Invoice total: €12,000 — no VAT, because the principal accounts for it.
• RCT at 20% of €12,000: €2,400, deducted by the principal.
• Amount you're paid: €9,600.

Invoice Native's RCT switch shows the deduction and the amount payable after it under the total. When the principal pays, record the €2,400 as "RCT deducted by the principal" and the invoice is settled. The RCT calculator does the same sum.

Checking the reverse charge applies

The construction reverse charge applies when all of these are true:

• you're registered for VAT;
• you're a subcontractor supplying construction operations — building, alteration, repair, decoration, installing systems such as heating or electrics;
• your customer is a principal contractor under RCT, such as a main contractor, a property developer, a local authority or a utility company. A business that is only having its own premises built or repaired usually isn’t one.

If you supply a homeowner, or a business that isn't a principal under RCT, charge VAT as normal at 13.5% (or the rate that applies) on a normal VAT invoice.

What goes on the invoice

On a reverse-charge construction invoice, Invoice Native prints:

• VAT Invoice as the title, your VAT number and the principal contractor's VAT number;
• each line with its description and amount, with no VAT rate;
• a summary with the net amount and no VAT;
• the statement "VAT on this supply to be accounted for by the principal contractor";
• with RCT switched on, the contract payment, the RCT at its rate and the amount payable after RCT.

Don't add VAT to the total: the principal pays you the net amount, less any RCT.

Subcontractors who aren't VAT registered

Many sole-trader subcontractors are below the VAT threshold. Their invoices show no VAT at all — there's nothing to reverse charge — but the principal still deducts RCT at the rate on the deduction authorisation, from the whole payment. Invoice Native lets you switch RCT on whether or not you're registered for VAT.

Credit notes

If you agree to reduce a reverse-charged invoice, the credit note follows the same rules: no VAT shown, the same statement, and a reference to the original invoice.

Recording the payment

When the principal pays, it sends you a deduction summary from Revenue's system showing the RCT it deducted. Keep it: it's your proof of the tax paid on your behalf. In Invoice Native, record the cash you received as a bank transfer and the RCT as "RCT deducted by the principal", so the invoice shows as paid in full.

On your VAT return

Reverse-charged construction sales don't add to your VAT on sales (T1). Signed-in Invoice Native businesses see them listed on their own in the VAT3 summary.