Understanding RCT in 2025–2026: What Irish SMEs and Subcontractors Must Know

Relevant contract tax

Published: December 2025
Author: Amergin Consulting Ltd.
Target Audience: Business Owners, Finance Managers, and Small Business Seeking Financial Stability
Book a meeting: https://calendly.com/amergin-group_free/30min

If you run a business in Ireland especially in construction, forestry, meat-processing or related industries or you engage subcontractors in those sectors, you need to understand how the Relevant Contracts Tax (RCT) regime works. RCT isn’t about profit or corporate tax. Instead, it’s a withholding tax system triggered when a “principal contractor” pays a subcontractor for what are known as “relevant operations.”

Since the process moved fully online with the electronic RCT system, compliance has become not only mandatory it has also grown more scrutinised. Mistakes, missed notifications or incorrect tax deductions can lead to serious penalties; but with proper structure, correct procedures and forward planning, RCT can be handled efficiently, reliably, and even used as a compliance-strengthening framework.

Here’s what every business principal or subcontractor in 2025–2026 should know about RCT.

What Is RCT  And When Does It Apply

RCT is defined as a withholding tax regime that applies to certain payments made under “relevant contracts” — contracts for relevant operations in the construction, forestry, or meat-processing sectors. Revenue+2Revenue+2

Relevant operations include, among many activities: building or altering structures, repair, demolition, installation of systems (heating, ventilation, electrics, plumbing, telecommunications), groundwork, site-clearing, landscaping, excavation, haulage of materials for hire, and other services related to construction. Revenue+2Revenue+2

Forestry or timber-related work and meat-processing operations are also covered, when the contract involves “relevant operations.” Revenue+1

If you are a principal contractor — that is, you’ve engaged a subcontractor under a relevant contract — you are responsible for operating RCT. That means you must withhold the correct amount of tax when you make a payment to the subcontractor.

If you are a subcontractor working for a principal contractor, the payment you receive may already have RCT deducted — which you can usually offset against your overall tax liability. Tax Return Plus+2Deloitte+2

RCT isn’t optional or occasional. It applies by law whenever the contract and payment fit the relevant criteria.

How the Current RCT System Works (2025)

RCT now operates entirely through a digital system — all notifications, payments, deductions and filings go through the Revenue Online Service (ROS). Revenue+2Deloitte+2

Here’s the standard sequence for a principal contractor under RCT:

  1. Register for RCT on ROS if not already registered. Revenue+1

  2. Contract Notification before work begins, each relevant contract must be notified to Revenue, with details of the subcontractor, estimated value, labour/supply classification, and more. Revenue+2Grant Thornton Ireland+2

  3. Site Identifier Number (SIN) for certain contracts, a SIN may be required (especially for large or long-term works). Grant Thornton Ireland+1

  4. Payment Notification (before payment) before paying a subcontractor, the principal must notify Revenue of the payment amount (typically VAT-exclusive if VAT reverse-charge applies). Revenue+2Revenue+2

  5. Deduction Authorisation from Revenue Revenue responds with the authorised tax-deduction rate to apply. Current possible deduction rates are 0%, 20% or 35%, depending on the subcontractor’s RCT registration status and compliance history. Revenue+2TRA Professional+2

  6. Deduct Tax & Pay Net Amount the principal deducts the authorised amount and pays remainder to the subcontractor. The deducted amount is remitted to Revenue. Revenue+2Deloitte+2

  7. Issue Payment Notification Acknowledgement to Subcontractor subcontractors need the acknowledgement to support their tax records. Grant Thornton Ireland+1

  8. Monthly/Quarterly Deduction Summary & Return at end of each return period, principal contractors submit a deduction summary including all payments, RCT withheld, and remitted amounts. Neglecting this step, or missing it, can lead to penalties. Revenue+2Grant Thornton Ireland+2

Because of this structure, any payment made without a preceding Payment Notification and Deduction Authorisation is technically non-compliant, and penalties can apply. RSM Global+2Revenue+2

Why RCT Matters: Cashflow, Compliance & Risk for SMEs

Cashflow Management & Withholding

For subcontractors, RCT means you receive net pay (after withholding) rather than full invoice amount. That affects cashflow significantly  especially for small or new businesses that rely on every euro. Planning for net cashflow becomes vital.

For principal contractors, withholding reduces immediate cash outlay, but you carry significant administrative burden. Because payment notifications and deduction authorisations must occur before every payment, you must coordinate contracts, invoicing, and payments carefully poor timing can create delays, supplier friction or compliance risk.

Compliance Risk & Penalties

RCT is a compliance regime with strict rules. Mistakes or omissions paying without notification, using wrong rate, failing to submit deductions summary can lead to civil penalties. For example, paying a subcontractor without deduction authorisation can render the withholding void and expose the payer to penalties. RSM Global+2Revenue+2

Because all RCT activity is logged electronically through ROS, the system is transparent and traceable. This makes non-compliance easy to detect. Revenue+2Deloitte+2

VAT & Reverse-Charge Implications

In many RCT contracts (especially construction), VAT must be accounted via the reverse-charge mechanism: subcontractors should not charge VAT on services subject to RCT; instead, the principal contractor accounts for VAT under reverse-charge rules. TRA Professional+1

If VAT or RCT is handled incorrectly e.g., VAT charged when reverse-charge applies, or VAT and RCT both misapplied the risk of penalties, VAT audits or dispute is real.

Impact on Non-Resident Contractors & Foreign Companies

RCT does not depend on residency. Even if the subcontractor (or principal) is non-resident, as long as the work is done in Ireland under a relevant contract, RCT applies. Baker Tilly Ireland+2Revenue+2

That adds complexity for international firms operating in Ireland or using subcontractors abroad. Failure to recognise RCT obligations can lead to large withholding tax deductions, compliance breaches or unexpected cashflow issues.

How SMEs, Contractors, Subcontractors Should Prepare Best Practice Under RCT

If your business participates (or plans to participate) in contracts subject to RCT, here’s how to prepare properly:

  • Ensure your business is registered for RCT on ROS if acting as a principal or that your subcontractor is registered if you act as principal.

  • For every contract, run a Contract Notification before starting work. Keep accurate documentation about subcontractor identity, scope of work, site location, contract value and expected payments.

  • Track and manage payments carefully never pay a subcontractor before submitting a Payment Notification and receiving Deduction Authorisation.

  • Keep receipts of payment notifications, acknowledgements and deduction summaries issue Payment Notification Acknowledgement to subcontractors without delay.

  • Align VAT treatment correctly if RCT applies, check whether reverse-charge VAT applies and adjust invoicing accordingly.

  • Build robust bookkeeping and accounting systems, ideally integrated with RCT and payroll/vat systems manual spreadsheets increase risk of error.

  • For subcontractors: recognise that withheld RCT is not lost it is credited against your income tax or corporate tax liability. Keep clear records and ensure proper tax filing at year-end. Tax Return Plus+2RSM Global+2

  • For any non-resident contractors/subcontractors: ensure RCT registration happens before work begins ignorance of residency does not exempt RCT liability.

How Amergin Consulting Ltd. Helps Businesses Manage RCT Risk & Compliance

RCT compliance can feel daunting, particularly if you are small, growing quickly, managing multiple subcontractors, or doing one-off contracts. That’s where Amergin steps in:

• RCT Readiness & Registration Support — we guide businesses through registration for RCT on ROS, including non-resident contractors, to ensure compliance before the first contract begins.

• Contract & Payment Workflow Design we help build contract-notification and payment-notification workflows to ensure no payments occur before deduction authorisation, eliminating compliance gaps.

• Integrated Accounting & Bookkeeping our systems integrate RCT, VAT (including reverse-charge logic), payroll and expenses so your financial records stay clean, reconciled, and audit-ready.

• Cashflow Forecasting & Net Pay Planning for subcontractors: we forecast net income after RCT; for principals: we help model cashflow, tax remittance schedules and payment cycles — essential when many subcontractors and payments are involved.

• Compliance Monitoring & Penalty Avoidance we monitor RCT deduction summaries, deadlines, site-identifier numbers and revenue submissions to ensure you never miss a filing or payment, avoiding costly penalties.

• VAT + RCT Strategy & Advisory many construction and related projects involve both RCT and VAT (often under reverse-charge rules). We help clarify when VAT, RCT or both apply, so you avoid mistakes that can trigger audits or disputes.

For SMEs, contractors or subcontractors, partnering with Amergin means not having to juggle tax paperwork alongside actual operations. Instead, you get clarity, compliance, and breathing space so you can focus on delivering quality work rather than worrying about deductions.

What to Watch for Common Pitfalls & How to Avoid Them

Because RCT compliance is strict and operates automatically via ROS, even small mistakes can carry big costs. Common problems we see (and help clients avoid):

  • Payments made before notifying Revenue → with no Deduction Authorisation, withholding is invalid.

  • Failure to issue Payment Notification Acknowledgement to subcontractor → creates disputes and non-compliance.

  • Misapplication of VAT (charging VAT instead of using reverse-charge when RCT applies) → leads to VAT liabilities or penalties.

  • Poor record-keeping or lack of documentation (contracts, site info, payments) → audit risk, difficulty justifying compliance.

  • Misunderstanding who qualifies as a “principal contractor” especially with remote or international contractors/subcontractors. RCT applies based on where works are performed, not where the contractor lives. TaxKey+2Baker Tilly Ireland+2

Avoiding these pitfalls requires systems, discipline, and often outside support which is why many SMEs benefit from working with a specialised advisor.

Conclusion: RCT Is Not Optional But It Can Be Managed

In 2025–2026, with increased scrutiny, a fully digital RCT system and growing Government focus on compliance, Relevant Contracts Tax is something every contractor and subcontractor in the covered sectors must take seriously.

RCT demands attention from the very start of a contract registration, notifications, deduction authorisations, accurate payments, documentation, and monthly summaries. It changes how cash flows through a business, affects net payments, and increases administrative overhead.

But with the right systems, planning, and expert support, RCT becomes manageable. It is not a barrier it is a compliance framework.

If you are a principal contractor, subcontractor, or plan to engage in relevant operations consider building your compliance and financial structure now. With the right setup, RCT doesn’t have to be stressful.

At Amergin Consulting Ltd., we help businesses navigate RCT’s complexity, avoid costly mistakes, and stay compliant while focusing on growth.

About Amergin Consulting Ltd.

Amergin Consulting Ltd. is a Dublin-based chartered accountancy and business advisory firm serving Ireland’s SMEs and growth companies across construction, technology, professional services, and renewable energy.
We specialise in Accounting, Payroll, Taxation, and CFO Services that help businesses build stronger foundations for profit and compliance.

Need help running a year-end tax review or planning your 2026 payroll changes?
Amergin Consulting’s finance and tax team can help you identify deductions, forecast cash flow, and ensure full compliance before the year closes.
Book your 30-minute consultation:  https://calendly.com/amergin-group_free/30min

Disclaimer

This article is for general informational purposes only and does not constitute financial or tax advice. While every effort has been made to ensure accuracy, Budget 2026 legislation may change upon enactment of the Finance Act 2025.
Public should seek professional advice tailored to their specific circumstances before acting on any points discussed.

Sources

  • Revenue Commissioners — “Relevant Contracts Tax (RCT)” official guidance page. Revenue

  • Revenue Commissioners — TDM manual on RCT operations and e-RCT system procedures. Revenue+1

  • Grant Thornton / Grant Thornton Ireland — Practical guide to avoiding RCT pitfalls for principal contractors. Grant Thornton Ireland

  • Deloitte Ireland — Overview of RCT and its application for principal contractors and subcontractors. Deloitte

  • Tax Return Plus / RCT Subcontractor guides — explanation of RCT deduction, crediting, and obligations for subcontractors. Tax Return Plus
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