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Card Processing Fees and Taxes: A Guide for UK Merchants


As a business owner in the UK, it’s crucial to understand the card processing fees and taxes associated with your transactions. These costs can impact your bottom line, and getting it right can mean the difference between success and failure.

But don’t worry; mastering this is more manageable than it may seem. By understanding the ins and outs of the system, you can identify overspending or missing out on potential savings. Plus, with a clear view of the payment processing charges and taxes required, you’ll have greater control over your finances, which helps you make more informed business decisions.

Let’s dive in and learn more about card processing fees and taxes together. This article explores:

  • The different types of processing fees you should be aware of
  • Businesses taxes in the UK and how to stay compliant
  • Handy tips to reduce your fees and optimise your income and expenses

Types of card processing fees

Business owners should be aware of card transaction overheads when they take payments. This may feel daunting, but you can stay on top of the game with a little research. The most common fees business owners face are outlined below.

Interchange fees are collected when a customer pays by card. They’re set by card networks (like Visa or Mastercard) and vary based on the card type and how the transaction is processed.

Assessment fees are the insurance for your business transaction. Card networks charge this fee to cover services like fraud protection and authorisation.

Card acquirers pay scheme fees to the card networks.

Acquirer fees, also known as acquirer markup or processing fees, are charged by the acquirer to cover their fees and profit.

Card networks may charge additional fees for setup, hardware, compliance, chargebacks, refunds, and early termination fees if a contract is in place.

Types of business taxes in the UK

Taxes, taxes, taxes! Nobody wants to deal with tax, but it’s central to running a tight ship. We’ve already touched on registering your UK business for tax purposes, but that’s your first step. Then, depending on your business type and turnover, you must be aware of common taxes, which we’ve outlined below.

Value Added Tax (VAT): The government’s way of getting a piece of the pie and the most common tax for UK businesses. VAT is added to most goods and services, including transactions. Merchants collect VAT on their sales but can also claim VAT paid on their business expenses.

Corporation Tax: Like any other business, merchants are subject to Corporation Tax on their profits. If you run a limited company, a foreign company with a UK office, a club, a co-operative or another unincorporated association, then this tax applies to you. It’s currently set at 25% of profits, but rates can change.

Card processing income: Funds from card processing are usually treated like any other cash flow. This income gets included in the overall profit of your business to calculate tax.

Researching card processing fees and taxes

How to stay tax-compliant

Staying current with taxes in the UK is crucial for a smooth and stress-free business journey. Here are some friendly tips for business owners and merchants.

Accurate bookkeeping: Record all transactions, expenses, and income to make filing and inspections easier. Use accounting software like Xero or QuickBooks, which is automatically integrated with Atoa. More information on how to make sure your connection is correct on the link!

Understand VAT rules: If your business’s annual turnover exceeds the current threshold of £85,000, then you must complete VAT registration to stay compliant. Registration lets you charge VAT on your sales and reclaim it on your expenses. 

Stay updated on tax rates: Tax rates can change. Monitor HMRC for any updates or changes in VAT rates and Corporation Tax so your calculations are spot-on.

Seek professional advice: Accountants and tax experts can guide you through essential regulations, helping you make informed decisions and save money.

Use accounting software: Embrace accounting software for simplified record-keeping. It can help track your expenses, income, and tax liabilities. 

Meet filing deadlines: Attend to your tax filing deadlines. Late filings can result in penalties, and you want to avoid those! Mark your calendar and set reminders – whatever works to ensure you’re submitting on time.

Review your finances regularly: Review your finances to catch any issues early on. These check-ins help make adjustments and stay financially sound.

Remember, staying tax-compliant is not just about avoiding trouble. It’s about building and protecting your business! Stay smart, and seek advice if you feel out of depth.  

Tips for reducing card processing fees

Running a business in the UK comes with its fair share of challenges, and card processing fees are one of them. Card fees can range from 1-2% per transaction, which businesses feel the brunt of. However, business owners can minimise these fees in several ways to increase profits. Let’s have a look at them.

If you’re unhappy, negotiate with your current payment processor. Be bold in discussing fees and securing a better deal, especially if you are a loyal customer.

Also, why not shop about and check out alternative payment processing solution pricing? The market is diverse, with providers offering lower fees without using cards, thanks to open banking technology. Take time to research and compare providers for more competitive rates. Analyse point-of-sale system fees, too.

Consider the simplicity of flat-rate pricing, especially if your business processes a high volume of transactions. Atoa charges an unbeatably low flat rate on transactions but also caps fees at £10 per payment. We’re also flexible on our fees if you process a high volume of transactions.  

Investing in technology may be the game-changer you need. Secure payment gateways and alternative providers can remove the risk of chargebacks, reducing additional fees. Consider exploring payment solutions like Atoa to make your processing easier on the wallet. We offer secure transactions made in the customer’s bank app, which reduces card processing fees and removes chargeback with biometric payments.

Encourage customers to use debit cards as they have lower processing fees than credit cards. Prioritising card-present transactions can save money on fees, too. These transactions often come with lower fees compared to card-not-present transactions. 

Review your monthly statements. Check for any unexpected fees or rate increases and challenge your payment processor.

Compliance isn’t just about security; it can save you from non-compliance fees. Ensure your business follows the Payment Card Industry Data Security Standard (PCI DSS) and other UK payment regulations.

Education is key. Train your staff, inform customers about the costs of different payment methods for your business, and encourage using cost-effective options.

Optimise your taxes!

Being tax savvy is another way to get the most from your income. Whether using a trusted accountant or going it alone with spreadsheets or accounting software, here’s a handy checklist with some of the most useful tax-deductible expenses to consider.

Payment processor fees: Tick off those fees! They’re deductible and like a little refund with each transaction.

Hardware: Did you invest in a new POS or security system? It’s a deduction; mark it down!

Business subscriptions: Tick, tick, tick! Your essential software and other business subscriptions may well get a look in.

Marketing and advertising: Advertised online or on a billboard? Mark down your promo costs! 

Office supplies and equipment: Restock alert! Office supplies and that new bit of tech? Yep, they’re on the checklist.

Travel: Do you travel for business? Stamp your travel expenses on the list…

Training and development costs: Invested in new skills? Check! Training and development for you and your employees are tax-smart investments.

Home office: Run an online business from home? Note those home office expenses, as you may be entitled to money back on your heating and more.

Remember, this checklist is just a taste of what might be tax deductible in your operations! But there may be more expense categories depending on your business type and size, so seek proper financial advice to get the bigger picture (and savings!)

The takeaway

As a UK business owner, understanding card processing fees and taxes is essential to what you do. These costs aren’t just numbers but can make or break your success. But fret not; mastering this isn’t such a tall order.

Pore over the details, and you’ll soon uncover potential savings and overspending. With a clear view of payment processing charges and taxes, plus a few handy tips for optimising them, you can take control to make smarter business moves.

If you’re ready for a change, why not consider cutting cards from your operation? Atoa offers easy QR code transactions and payment links that sidestep the card rails to offer dramatically reduced fees. We’re talking a maximum flat rate of 0.6%, capped at £10 per transaction. Come and explore the savings…

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