Efforts by the Revenue to force indebted people pay VAT on advice to get themselves out of financial trouble have been rejected.

In what has been described as a landmark ruling has found that debt management services are not subject to VAT.

Essentially, when people approached a debt management agency, Revenue was insisting that they be charge VAT at 23 per cent on the professional service fee charged by the debt agency to handle their case.

The ruling comes in a case taken by Money Village, which claims to be Ireland’s largest debt management services company, handling over €40 million in debt on behalf of clients. It was established in 2010.

It had lodged an expression of doubt over the payment of VAT on its debt management services.

Hearings by the Appeals Commissioner are heard in camera but it is reported that the Appeals Commissioner drew on case law in both Europe and the UK, where the debt management industry has been longer established. In both jurisdictions, debt management and related services are zero rated for VAT.

Money Village chief executive Eugene McDarby welcomed the decision.

“It makes absolutely no sense to further saddle people in debt with even more taxation, and that is precisely what Revenue were doing here. This was a stealth tax on already stressed people.”

He said the ruling was “common sense” and “favours the already indebted consumer”.