Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

It is important to emphasise that the relevant contracts tax, known as the RCT system, does not determine the employment status of an individual engaged in the construction industry. The design and development of the relevant contracts tax system was an anti-tax evasion measure to counteract tax evasion in the construction, forestry and meat processing sectors. Principal contractors are required to deduct tax from the payments made to sub-contractors and pay it to the Revenue Commissioners. As it is recognised that it would be undesirable to deduct tax from compliant sub-contractors, provision is made for these compliant sub-contractors to receive payments without deduction of tax.

The electronic relevant contracts tax, or eRCT, system was introduced with effect from 1 January 2012 and has reduced substantially the opportunities for fraud, mainly from bogus documentation, that attached to the previous paper-based RCT system.

It is important to emphasise that the system does not determine the employment status of any individual engaged in the construction industry. Where the parties have entered into a contract for employment, that is, there is a principal and subcontractor relationship, the eRCT system operates to determine the tax obligations on all parties. In contrast, where the parties have entered into a contract of employment, that is, there is an employer-employee relationship, PAYE operates on all payments made.

The Revenue Commissioners have undertaken to examine any case brought to their attention of "bogus self-employment". In 2015, a sector-specific compliance programme was initiated for the construction industry, which included a focus on the mis-classification of employees by employers. Interventions by Revenue into the construction industry in 2015, which have included audits, resulted in additional yield for the exchequer of €51 million.

The code of practice for determining the employment or self-employment status of individuals was created to assist both parties to an engagement, including an engagement in the construction sector, in determining whether a contract of engagement is, by its nature, either a contract of service, that is, an employer and employee arrangement, or a contract for service, that is, not an employer and employee arrangement. The code of practice is not a Revenue code, but was compiled with the assistance of a variety of Government and representative organisations.

Since RCT does not determine the employment status of an individual, I do not propose to accept the amendment. Revenue is inviting members of the public, including elected representatives and members of trade unions, to draw to its attention any example of bogus self-employment and is committed to dealing with same. While the Deputy has been strong in his general arguments, he has been short on specifics. If he knows of specific cases, he should ring Revenue, which is committed to rooting out the practice.

The revitalised construction industry is moving away from the tradition of main contractors employing hundreds of workers towards a subcontractor model in which a developer with a small staff of administrators is bringing in people to pour foundations and lay blocks, electricians, carpenters and so on. The different sectors of the building trade are organised on a subcontract basis to a greater degree than previously. This is not to say that what they are doing is illegitimate or not Revenue compliant. It is just a different model.

There is another factor. The Deputy will see it if residential house building in Dublin gets reactivated to the same degree as commercial building. Construction is largely becoming a manufacturing industry.