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Debt deals

VAT will be charged on personal insolvency deals, but creditors will pay it

Finance Minister Michael Noonan has pointed out that debtors availing of a personal insolvency arrangement will see the cost of their fees borne by those who they owe money to.

VAT OF 23 per cent will be charged by personal insolvency practitioners (PIPs) when working out settlements between indebted borrowers and their creditors, the Finance Minister has confirmed.

Michael Noonan has responded to a number of parliamentary questions about the issue in recent weeks.

However, in his most recent answers this week he has pointed out that the cost of the personal insolvency practitioner, including their fees and VAT, will be deducted from a debtor’s settlement with their lenders.

Noonan has ruled out a VAT exemption on work carried out by personal insolvency practitioners citing the EU VAT directive, Irish law and European Court of Justice decisions as reasons for this.

He said that insolvency practitioners will operate in the same way as other insolvency services such liquidators, receivers and examiners, who are all liable to VAT of 23 per cent and pass this onto their customers.

However the Minister said that Revenue had determined that under a personal insolvency arrangement a PIP’s fees will be deducted from the dividend payments to creditors rather than charged to the debtor personally.

Noonan explained: “As the debtor is availing of a personal insolvency arrangement because of their insolvent position, it is the creditor who is bearing the ultimate cost of the fees and the VAT on the fees.”

The Insolvency Service of Ireland (ISI) was established in March and is currently accepting applications from prospective practitioners but not yet accepting applications for people seeking debt settlement arrangements despite a commitment to do this by the end of last month.

Read: These are the 6 judges who’ll be dealing with personal insolvency applications

Read: New insolvency guidelines protect banks at borrowers’ expense – opposition

Read: Struggling borrowers may have to move house, sell car and change creche to enter new insolvency process

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