Without doubt, the Revenue Commissioners are targeting the constructor sector, and they are not hiding it; as they told us in Revenue E-Brief 33/16 released in March 2016.
In 2016 alone, the Revenue carried out 17,801 audits and interventions in the construction sector. This is over twice as many as any other sector. They yielded almost €55 million from these audits. This yield alone justifies the massive amount of inspections and I do not see them reducing their efforts in the construction sector anytime soon.
Revenue Commissioners have advised that the following issues are constantly coming up during these inspections:
ROS is not being notified BEFORE the payments are made to Sub-Contractors.
Principal contractors also need to ensure that Sub-Contractors are actually contractors and not employees. Are they labour only, sole-trader contractors, who only work for your company week in week out? If the answer to this question is yes, then your company is totally exposed in this area and you need to speak to your accountant or tax advisor and find out the risks associated with these contractors. The consequences of making a mistake in this area can be very expensive and it can be avoided if you take corrective action.
Without doubt, the biggest service that is missed when it comes to operating RCT are payments to skip companies. Unless specifically asked, the skip companies will not automatically operate RCT VAT rules on the invoices and your bookkeeper may miss these payments.
Another very common mistake is that RCT is not operated on haulage services provided to the construction sector. A major reason why RCT on haulage is not operated is that haulage contractors are still required to charge 23% VAT on their invoices. They are exempt from applying the Reverse Charge VAT rules that apply to Sub-Contractors operating in the construction sector, but they are still considered to be Sub-Contractors and RCT on payments to them must be operated.
Payment of country money without deduction of PAYE/PRSI/USC is subject to strict criteria.
Sufficient records are not being kept to backup the country money and other travel and subsistence payments. Detailed checks and reviews on these payments are a major part of Revenue interventions in the sector.
The Revenue Commissioners have told us that some of the issues being regularly encountered include:
One of the major causes for this is that your bookkeeping software is not correctly set-up to account for Reverse Charge VAT transactions. In most cases, this is very easy to correct. Please contact DBASS and we will review and fix this free of charge.
The Sub-Contractors must remember not to charge VAT on the invoice and to include the statement “VAT to be accounted for by the Principal Contractor”.
The VAT two-thirds rule does not apply to invoices from Sub-Contractors to principals. The supply of these services is simply at zero %.
Connected parties in these terms usually mean works done by construction companies for the directors and/or shareholders of the company. When you engage your construction company to carry out works on your private home or investment properties then you become a Principal Contractor in your own right and you need to register for RCT.
In summary, Revenue E-Audits and interventions in the construction sector are here to stay and mistakes are being made. If you have any queries about the issues identified above or any other concerns, please do not hesitate to contact me on 01 849 8800. I have over 12 years experience dealing with Revenue and carrying out detailed E-Audit reviews of construction companies. I know the issues and how to minimise the exposure. If you want additional information in relation to E-Audits, click here to read my previous blog on the subject (http://www.dbass.ie/advice-resources/advice/what-is-a-revenue-e-audit).
Written by: Seán O’Reilly ACA - Manager, DBASS Chartered Accountants