Revenue debt and personal insolvency: A path to financial stability

The challenge of Revenue debt in Ireland

A significant number of people in Ireland struggle with the financial burden of unmanageable Revenue debt. This often poses a severe challenge, particularly for individuals with a history of financial strain or those who deferred tax payments under COVID-19 debt warehousing.

These debts, including income tax, VAT, capital gains tax, and local property tax (LPT), can lead to enforced collections, bank account freezes, or asset seizures when unpaid. Personal insolvency provides a solution for individuals with unmanageable debt, including Revenue debt.

This article examines the origin of Revenue debt, the Revenue Commissioners' collection methods, and how personal insolvency arrangements (PIAs) and debt settlement arrangements (DSAs) can help address unsustainable levels of Revenue debt.

What is Revenue debt and where does it come from?

Revenue debt refers to unpaid taxes or levies owed to the Revenue Commissioners. For individuals, it commonly includes:

• Income tax
• VAT and payroll taxes for sole traders
• Capital gains tax (CGT) and capital acquisitions tax (CAT)
• Local property tax (LPT)

One major issue is the repayment of COVID-19 debt warehousing. This scheme allowed individuals and businesses to defer tax payments temporarily. Now that these deferred payments are due, some individuals, particularly sole traders, face substantial liabilities with no means to pay.

Revenue’s debt collection methods

The Revenue Commissioners use several measures to collect unpaid taxes, ranging from demand letters to asset seizure. The process typically starts with a demand letter, followed by actions such as freezing or closing bank accounts. In severe cases, the sheriff may seize assets such as vehicles or property to recover unpaid taxes.

Engaging with a personal insolvency practitioner (PIP) can halt these measures through a protective certificate (PC), allowing time for the PIP to negotiate an affordable repayment plan with Revenue and other creditors.

Personal insolvency as a solution to Revenue debt

Personal insolvency arrangements, managed by PIPs, offer structured relief for those unable to meet their tax obligations. DSAs and PIAs help individuals settle or reduce debts while protecting assets, including the family home. For sole traders, they provide a solution that allows continued business operations.

Approved insolvency arrangements often result in lower repayments than those negotiated directly with Revenue. A protective certificate temporarily halts creditor enforcement actions, allowing debtors to negotiate terms without the immediate risk of losing assets. 

Types of Revenue debt in personal insolvency and their treatment

1. Preferential debts: These must be paid in full. Revenue debt classified as preferential includes:
   • Tax debt from the 12 months before the PC
   • The 12-month period with the highest income tax CGT debt
   • The 12-month period with the highest income tax CAT debt
2. Unsecured debts: These, including penalties, can often be significantly reduced through insolvency, with Revenue accepting partial repayment.
3. Local property tax (LPT): While LPT must be repaid, it can be managed within an insolvency arrangement.

Personal insolvency typically allows for manageable repayment terms. PIAs and DSAs often offer lower repayments than those negotiated directly with Revenue.

Case studies: Real-life Revenue debt resolutions

Accelerated DSA with lump sum payment

• Background: Jane, a former sole trader, owed €127,000 in Revenue debt, primarily from VAT and income tax arrears. Now in PAYE employment, she had limited income to repay her historic Revenue debt and faced enforcement action.
• Solution: With the help of a PIP at Grant Thornton, Jane’s family contributed €25,000 towards an accelerated DSA. Creditors accepted this as a final settlement, with €15,000 allocated to preferential debt and €10,000 covering part of her unsecured obligations and the PIP’s fee. This approach settled her debts and alleviated financial stress. Her case was resolved in six months, saving her from a prolonged debt burden.

Five-year DSA with monthly contributions

• Background: Liam, a sole trader, owed €120,000 in taxes after his business struggled post-COVID. His business generated a modest income, but he had little surplus to repay historic debts.
• Solution: A Grant Thornton PIP proposed a five-year DSA with affordable monthly contributions. This enabled him to repay €15,000 in preferential VAT debts in full, while the remaining €105,000 in unsecured debts was settled with a €10,500 dividend, equating to 10 cents per euro. This structured approach helped him avoid asset seizure and continue operating his business.

FAQs about Revenue debt in personal insolvency

Conclusion: A path to financial stability

Unmanageable Revenue debt, while daunting and stressful, does not have to lead to financial ruin. Personal insolvency options, such as DSAs and PIAs, provide a structured approach to debt resolution. Consulting a PIP is often the first step towards financial relief, helping individuals regain control of their finances and work towards long-term stability.

If you or someone you know is struggling with historic Revenue debt, contact our specialist team today.

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