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

It is important to emphasise that the relevant contracts tax, RTC, system does not determine the employment status of any 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 over to Revenue. 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, eRCT, system was introduced with effect from 1 January 2012 and it has reduced substantially the opportunities for fraud, mainly from bogus documentation, which attached to the previous paper-based relevant contracts tax system. As I have said, the eRCT 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, where there is a principal and sub-contractor relationship, the eRCT system operates to determine the tax obligations on all parties. Having regard to the start your business relief provisions, introduced by Finance (No. 2) Act 2013, there is a tax incentive for individuals to operate as self-employed where these individuals have been unemployed for more than 12 months. These individuals may earn up to €40,000 tax free in the first two years of trading. This is likely to be a factor in explaining the growth of self-employment within the construction sector.

Where the parties have entered into a contract of employment, such as where there is an employer-employee relationship, then PAYE operates on all payments made. The Revenue Commissioners have undertaken to examine any cases 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 misclassification 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 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 if a contract of engagement is, by its nature, either a contract of service - an employer and employee arrangement - or a contract for service - not an employer and employee relationship. The code of practice for determining employment or self-employment status of individuals is not a Revenue code but was compiled with the assistance of a variety of Government and representative organisations. For the reasons I have just outlined, I do not propose to accept the amendment.

In 2103 the gross yield of relevant contracts tax, RTC, to the Exchequer was €132 million, in 2014, it was €172 million and in 2015, it was €174 million. The working group has been examining the issue of the use of intermediary type employment structures and self-employment arrangements, their impact on tax and PRSI and, as Deputy Burton referred to, a report on the submissions is being prepared by the working group which will be finalised in the very near future. It will identify possible options for addressing the loss to the Exchequer and will also look at the broader issues of disguised employment. Officials are at an advanced stage of drafting.

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