Relevant Contracts Tax (RCT) is one of the most misunderstood compliance requirements for Irish trade contractors. It is not optional, it is not limited to large contractors, and getting it wrong carries penalties that can significantly impact a business.
This guide covers what RCT is, who it applies to, what the current rules are, and how connected operational systems make compliance part of the workflow rather than a separate administrative overhead.
What is RCT?
RCT is a tax withholding mechanism that applies when a principal contractor makes payments to subcontractors in the construction, meat processing, and forestry sectors. The principal contractor is responsible for withholding tax at the applicable rate before paying the subcontractor, and remitting the withheld amount to Revenue.
The system operates through Revenue’s eRCT online platform, which is part of Revenue Online Service (ROS).
Who does RCT apply to?
If you are an Irish contractor who:
- Engages subcontractors to carry out construction, civil engineering, or related work
- Makes payments to those subcontractors for that work
...then you are a principal contractor for RCT purposes, and the full RCT compliance framework applies to you. The size of your business does not matter. A sole trader plumber who hires a labourer on a subcontract basis is a principal contractor.
The three deduction rates in 2025
| Rate | Applies When | What It Means |
|---|---|---|
| 0% | Subcontractor has Deduction Authorisation from Revenue | Subcontractor has a clean tax record. No withholding required. |
| 20% | Subcontractor is registered for RCT but has no authorisation | Subcontractor’s tax affairs are not fully cleared. 20% withheld and remitted to Revenue. |
| 35% | Subcontractor is not registered for RCT with Revenue | Highest risk category. 35% withheld. Subcontractor should be advised to register. |
The process for each subcontractor payment
- Contract notification: Before the first payment under a contract, the principal contractor must notify Revenue of the contract through eRCT (RCT1 form).
- Check deduction rate: The eRCT system returns the applicable deduction rate for that subcontractor. This rate is based on the subcontractor’s tax compliance status with Revenue.
- Apply deduction: Withhold the correct percentage from the gross payment to the subcontractor.
- Monthly return: File a monthly RCT35 return with Revenue, detailing all relevant payments made in the month and the amounts withheld.
- Remit withheld amounts: Pay the withheld amounts to Revenue with the monthly return.
Common mistakes and their costs
Failure to notify the contract: If you pay a subcontractor without first notifying Revenue, you are liable for the tax that should have been withheld — even if the subcontractor was on a 0% rate. Penalty applies on top.
Using the wrong rate: Rates change as subcontractors’ tax compliance status changes. A rate should be checked for each payment, not just the first one.
Late filing: Late RCT35 returns attract interest at 0.0219% per day on outstanding amounts. This compounds quickly on large subcontractor payrolls.
Making RCT part of the workflow
The manual approach — checking Revenue, applying deductions, filing monthly — is error-prone and time-consuming, particularly for trade businesses with multiple active subcontractors.
The integrated approach builds RCT into the purchase order workflow. When a subcontractor is set up in the system, their RCT status is recorded. When a payment is raised against their work, the deduction is calculated automatically. The monthly return is assembled from data that is already in the system.
For trade contractors in Ireland, this is not just about saving time. It is about eliminating the compliance risk that comes with managing a complex tax system manually.