Note: this article is general guidance only and is not tax advice. Always check your specific situation with an accountant or tax adviser.
Selling a debt for less than its face value has tax consequences in Ireland — generally reasonable, and often favourable for the seller. These are the key points.
Companies and sole traders: the loss is generally deductible
If you sell a €10,000 invoice for €6,000, you crystallise a €4,000 loss. For genuine trade debts, that loss is generally deductible against your trading profits, since it arises from a real, arm's-length disposal of the receivable.
A sale to an independent third party objectively documents the impairment of the receivable — often more robust before the Revenue Commissioners than an internal bad-debt provision alone.
What about the VAT on the unpaid invoice?
Be careful here. Irish VAT bad debt relief can let you reclaim VAT accounted for on invoices that remain unpaid, subject to conditions — but the treatment can change once the debt is assigned. If you intend to claim the relief, consider timing: assess it before selling the receivable. Review the official guidance from Revenue and confirm your position with your adviser.
VAT on the assignment itself
The transfer of debts is generally treated as a financial transaction for VAT purposes. In the normal case, the buyer does not pay VAT simply for acquiring the receivable.
Individuals
For an individual selling a private receivable, the difference between the sale price and the amount lent is usually a capital matter. Loans to friends or family have their own rules, and relief for an irrecoverable loan may be available in certain circumstances. Keep the loan agreement and the deed of assignment as evidence.
For the buyer
The buyer is taxed when they collect more than they paid: that difference is income or gain. Until they collect, there is no taxable profit.
Practical summary
Selling an uncollectable debt does more than bring in cash: it lets you crystallise the loss for tax purposes and close the file. Coordinate the transaction with your adviser to optimise VAT relief and deductibility for your situation. Debtalia is a marketplace that connects sellers with buyers directly, with anonymous listings and no commission on the sale — but it is not a source of tax advice.
