RCT is a tax that a business deducts from payments it makes to subcontractors in construction, forestry and meat processing, then pays over to Revenue. The deduction is made at one of three rates, 0%, 20% or 35%, and the rate depends on the subcontractor's tax compliance record, not on the size of the job.
This guide explains who has to operate RCT, how each payment works in practice, what the subcontractor gets back and what happens if the rules are not followed. Rules are as published by Revenue and checked on 19 October 2026.
What RCT is and who it applies to
RCT stands for Relevant Contracts Tax. Revenue describes it as a withholding tax on certain payments by principal contractors to subcontractors. The principal deducts the tax at source, pays the subcontractor the balance and sends the tax to Revenue.
For the subcontractor, the amount deducted is not a cost in itself. It is credited to their tax record and used against their own tax bills, which is explained further down.
All RCT filing, notifications and payments are made online through the Revenue Online Service (ROS). There is no paper version of the system.
Which work is covered
RCT applies only to contracts in three sectors, as listed by Revenue:
| Sector | Examples of work covered |
|---|---|
| Construction | Building, altering, repairing, extending or demolishing structures; installing or repairing heating, drainage and telecommunications systems; site works such as excavation, earth moving and scaffolding; haulage for hire |
| Forestry | Thinning, felling or planting trees; maintaining woods and plantations; preparing land for planting; processing wood in sawmills; haulage for hire |
| Meat processing | Slaughtering animals and poultry; cutting, packaging and branding carcasses; preserving or rendering carcasses; cleaning premises; haulage for hire |
Work outside these sectors does not fall under RCT, even if one business subcontracts it to another.
Who counts as a principal
You are a principal if you use a subcontractor to carry out work in one of the three sectors on behalf of your business. Revenue also treats these as principals:
- a person connected to a company involved in those activities
- local authorities, public utility societies and housing associations
- Government Ministers and boards or bodies established under statute
- businesses carrying on gas, water, electricity, dock, canal or railway work
- businesses installing, altering or repairing telecommunications systems
There is one important exclusion. If the only construction work you are involved in is on buildings or land for your own use, or for the use of your employees, you are not a principal for that work.
A principal must register with Revenue for RCT, notify Revenue of each contract and each payment, give the subcontractor details of the tax deducted and pay the tax over. Our guide to licences, RCT and insurance for a construction or contracting firm covers where RCT fits among the other set-up steps.
The three RCT rates: 0%, 20% and 35%
Revenue sets the rate for each subcontractor. On its subcontractor guidance the three rates are:
| Rate | Applies to a subcontractor with |
|---|---|
| 0% | An up to date tax compliance record |
| 20% | A substantially up to date tax compliance record |
| 35% | A poor tax compliance record, or no registration with Revenue |
In practice, a registered subcontractor who files and pays on time is usually on 0% or 20%. The 35% rate is the default for anyone Revenue cannot match to a registration, so it is the rate a principal applies when it does not have the subcontractor's correct details.
Subcontractors can review their own rate in ROS. If you believe your rate is wrong, sort out the underlying filings first, then ask Revenue to review it.
How the rate is set for each payment
The principal does not choose the rate. Revenue confirms it each time the principal tells Revenue about a payment, so a subcontractor's rate can change during a long contract if their compliance record changes.
To be matched correctly, the subcontractor gives the principal their recorded name and Tax Reference Number, together with proof of identity such as a passport, driving licence or tax registration details. The principal must keep this evidence on file.
A subcontractor who has not yet registered for tax will be deducted at 35%. If you are starting out as a subcontractor, registering for RCT and tax with Revenue before your first job is what keeps you off the top rate.
How RCT works on each payment
Revenue's notification rules follow the same four steps for every contract.
- Contract notification. Immediately after agreeing a contract with a subcontractor, the principal notifies Revenue through ROS. It includes the subcontractor's name and Tax Reference Number, the sector, the nature and location of the work, start and end dates, the estimated value and a declaration that the contract is not a contract of employment. Revenue issues a Site Identifier Number for the site or project.
- Payment notification. Before paying, the principal tells Revenue the gross amount and the payment date.
- Deduction authorisation. Revenue replies in the principal's ROS inbox with the tax to deduct. Where tax is due, the principal gives these details to the subcontractor.
- Deduction summary. After each monthly or quarterly period, Revenue builds a summary from the payment notifications. If it is correct, it stands as the principal's return. The tax deducted must reach Revenue by the 23rd of the month after the period ends.
A post-payment notification is allowed only where the principal could not notify on time because of technical difficulties. Principals who prefer to hand this work over can have their monthly or quarterly RCT returns prepared for them.
A worked example
A subcontractor completes plastering work and invoices a principal for €10,000. Because the work is a construction service subject to RCT, the invoice carries no VAT (see the invoicing section below). The principal notifies Revenue of the €10,000 payment.
| Subcontractor's rate | Tax deducted by the principal | Paid to the subcontractor | Sent to Revenue by the principal |
|---|---|---|---|
| 0% | €0 | €10,000 | €0 |
| 20% | €2,000 | €8,000 | €2,000 |
| 35% | €3,500 | €6,500 | €3,500 |
At 20%, the subcontractor receives €8,000 now and the €2,000 is credited to their tax record. The principal pays the €2,000 to Revenue by the 23rd of the month after the return period.
The example shows why the rate matters so much for cash flow. A subcontractor on 35% waits for more than a third of each payment to come back through their tax record.
What happens to the tax deducted
Revenue's credit and offset rules say the tax a principal deducts is credited automatically to the subcontractor's tax record. It is then offset against the subcontractor's own liabilities once the relevant return is filed:
- PAYE, after the monthly return is filed
- Income Tax or Corporation Tax, after the Form 11 or CT1 is filed (to use it against preliminary tax, file a preliminary tax declaration first)
- VAT, after the VAT3 return is filed
Offsets are made no later than seven days after the liability becomes due, and Revenue confirms them with a statement of account in the ROS inbox. For periods covered by debt warehousing or an instalment arrangement, the offset has to be requested through MyEnquiries. Our guide on how to claim back RCT explains the order of offsets and when any balance can be repaid.
The key point for subcontractors is that the credit only works when returns are filed. Late returns leave money sitting in the tax record and can push the rate up at the same time. Keep this year's Revenue deadlines in view, and see our guide to preliminary tax if you trade through a company or as a sole trader.
Invoicing construction work under RCT
Where a principal must operate RCT on a construction service, the VAT reverse charge applies, according to Revenue's VAT guidance on construction services. The principal, not the subcontractor, accounts for the VAT.
For the subcontractor, this means:
- the invoice does not include VAT
- it shows the subcontractor's VAT registration number and the statement "VAT on this supply to be accounted for by the principal contractor"
- it does not show a VAT rate or VAT amount
Government departments, local authorities and other public bodies that are principals are included in the reverse charge. Services that are not subject to RCT follow normal VAT rules, with the supplier charging VAT.
Penalties for unreported payments
A payment is unreported if the principal pays a subcontractor other than as shown on a deduction authorisation. Revenue's penalty rates depend on the subcontractor's rate:
| Subcontractor's rate | Penalty on each unreported payment |
|---|---|
| 0% | 3% of the payment |
| 20% | 10% of the payment |
| 35% | 20% of the payment |
| Status unknown | 35% of the payment |
Revenue sends the penalty notice to the principal's ROS inbox. If it is not paid, Revenue can issue a Notice of Opinion, and a disputed amount goes to a court for decision.
Employee or subcontractor?
RCT applies only to genuine subcontracting. Before registering a contract, a principal must decide whether the worker is an employee or self-employed, using the five questions set out in the Karshan judgment.
If an employment contract is wrongly registered as a relevant contract, the principal must pay the PAYE, PRSI and USC that should have been deducted, and may also owe interest and penalties. When in doubt, take advice before the work starts rather than after.
FAQ
What is RCT in simple terms?
It is tax that a business deducts from what it pays a subcontractor in construction, forestry or meat processing. The business pays the deduction to Revenue, and the subcontractor uses it as a credit against their own tax.
How much is RCT?
There are three rates: 0%, 20% and 35%. Revenue sets the rate for each subcontractor based on their tax compliance record, and unregistered subcontractors are deducted at 35%.
Who pays the deducted tax to Revenue?
The principal deducts the tax and pays it to Revenue, but the tax belongs to the subcontractor. It is credited to the subcontractor's tax record and offset against their PAYE, Income Tax, Corporation Tax or VAT once the relevant returns are filed.
Does RCT apply outside construction?
Only in forestry and meat processing. Other industries do not operate RCT, even where work is subcontracted.
Is VAT charged on invoices under RCT?
Not for construction services where RCT applies. The reverse charge applies, so the principal accounts for the VAT and the subcontractor's invoice shows no VAT amount.
What happens if a principal pays without notifying Revenue?
The payment is unreported and the principal faces a penalty of 3%, 10%, 20% or 35% of the payment, depending on the subcontractor's rate.
