Building sub-contractors such as bricklayers and roofers are facing increased scrutiny from the Revenue as it continues with a clampdown on the construction industry.
The Revenue last year signalled that it intended to focus on areas including compliance with relevant contracts tax, paid by builders on sub-contractors’ behalf, and VAT, as it continued with an overall programme aimed at ending abuse in the industry.
In a recent update, Revenue said that it has found that large numbers of businesses are not applying or accounting for VAT charges properly and the tax authority warned them to get their own houses in order.
“We strongly encourage self-review by those operating in the construction sector and recommend that the principals/sub-contractors regularise their affairs before any Revenue compliance intervention begins,” the Revenue said.
One area on which the tax authority is focused is the VAT reverse charge. This applies where main contractors have paid relevant contracts tax on behalf of trades people they hire to carry out work for them.
Proper accounts
If the withholding tax is paid, sub-contractors do not have to invoice for VAT, as the main contractor adds it to their bill. However, both parties must properly accounts for the tax and face penalties if they fail to do this.
Michael Scanlon, training and technical manager with Taxassist Accountants, which has large numbers of small-business clients, warned that companies that failed to comply were attracting the Revenue's attention.
“If they are at your door, they will look at everything,” he said. “It’s a thread that’s hanging out there that could end up in quite a significant payment being made.”
Taxassist believes that all trades and sub contractors should ensure that they are complying. Mr Scanlon also warned that Revenue is also continuing to judge who is an employee and who is a sub-contractor.
Relevant contracts tax is one of the means by which Revenue ensures and monitors builders’ compliance. There are three rates, zero for those who had tax clearance on January 1st 2012 and kept their affairs up to date, 20 per cent for most others and 35 per cent for those with a history of non-compliance.
The system gives the Revenue s real-time information that it says allows it to identify where there is a risk that companies are not complying.
The home improvement incentives introduced during the recession were also aimed at smoking out firms that were not compliant, as householders had to hire builders with tax clearance certificates.
