RCT treatment of turnkeys
Revenue’s updated guidance offers a clear distinction: contracts solely for acquiring completed properties, without any provision for construction operations, fall outside the scope of RCT. However, if the contract mentions the contractor or vendor carrying out construction operations, RCT procedures must be applied to the portion of the consideration relating to those operations.
This clarity allows you to move forward with greater certainty in your property transactions, but how do you determine which part of your contract is subject to RCT?
Apportionment consideration
Revenue now requires principal contractors to apportion the consideration for contracts covering both land supply and construction operations where a single contract price covers both the supply of land and construction operations. RCT and VAT reverse charge will apply only to the amount attributable to construction services, not to the land sale portion.
This change represents a departure from previous guidance, where RCT applied to the full contract value for mixed contracts. While Revenue hasn’t specified an apportionment method, we recommend using an arm’s length basis to ensure compliance.
Words matter: Identifying construction operations in contracts
Certain phrases or clauses in a contract can indicate that construction operations are being carried out, triggering RCT requirements. These might include:
The contractor will, for the contract price, build and fully complete the works on the site for the employer in a good, substantial and workmanlike manner, in accordance with the plans;
The “works” are defined as the construction of units as per the planning permission and specified plans, including all necessary ancillary works and services. This encompasses everything required for the use and enjoyment of the units, ensuring they are habitable when completed. It also includes works to complete all associated common areas, roads, footpaths, access routes, infrastructural works and services benefiting the site to a standard acceptable for taking charge by the local authority; or
If such language is present, the principal contractor must notify Revenue of the contract and all related payments through the online e-RCT system before making any payments.