Can I claim expenses for business-related payment gateway fees?

Understanding payment gateway fees in plain English

If you accept card payments or online payments, you almost certainly pay a payment gateway (or a payment processor) to handle the transaction. These fees can feel like an unavoidable “tax” on revenue: every sale comes with a percentage charge, a fixed fee, and sometimes a list of smaller add-ons that only show up when you reconcile your statements. The good news is that, for most businesses, business-related payment gateway fees are usually legitimate business expenses. That means they are typically claimable as deductible expenses when calculating taxable profits—provided the costs are incurred wholly and exclusively for the purposes of the business (or the equivalent standard in your jurisdiction).

This article explains what payment gateway fees are, when you can claim them, how to record them, common pitfalls, and practical examples. It is written for business owners, freelancers, and finance managers who want a clear, real-world guide rather than abstract theory. Because rules vary by country and business structure, treat this as general guidance and follow your local tax authority’s rules or professional advice for your specific situation.

What counts as “payment gateway fees”?

Payment gateway fees are the charges you pay to providers that enable customers to pay you electronically. Depending on the setup, you might have a “gateway” (the technology that securely transmits card data) plus a “merchant acquirer/processor” (the entity that settles funds). In practice, many modern providers bundle these together, so you see one provider and one fee schedule.

Common types of fees include:

Transaction fees: Usually a percentage of the sale (e.g., 1.4%–3.5%) plus a fixed amount (e.g., £0.20 or $0.30) per transaction.

Monthly subscription or account fees: Some providers charge a monthly plan fee for lower transaction rates or additional features.

Chargeback fees: When a customer disputes a card payment, the provider may charge an administrative fee per dispute (sometimes refundable if you win the dispute).

Refund fees: Some providers keep the fixed component of the transaction fee when you issue a refund, or charge a processing fee for refunds.

Cross-border and currency conversion fees: Additional charges for international cards, currency conversion, or multi-currency settlement.

PCI compliance fees: Fees relating to payment security requirements, sometimes charged by older-style merchant account providers.

Payout fees: Charges for transferring funds to your bank, especially for faster payouts.

Terminal rental fees: If you use card readers or point-of-sale terminals, there may be rental or service fees.

From a tax perspective, these are generally considered costs of collecting revenue—similar to bank charges or merchant service fees—so they are commonly deductible when they relate to business income.

The core question: can you claim them as expenses?

In most cases, yes: you can usually claim payment gateway fees as business expenses if the fees are incurred for business-related transactions. The key concept is that the expense must be connected to earning business income and not be personal in nature.

Put simply:

If the fee arises because a customer paid your business for goods or services, it is typically a business expense.

If the fee arises because you used the gateway for personal purchases, personal fundraising, or other non-business activity, it is typically not claimable.

There are a few nuances: mixed-use accounts, partially refundable fees, chargeback outcomes, and whether you record sales “gross” (before fees) or “net” (after fees). But the general principle remains consistent: business-related payment gateway fees are ordinarily deductible.

What “business-related” really means

Many disputes and bookkeeping headaches come from grey areas: side hustles, mixed accounts, personal sales, or using the same gateway for different activities. To decide whether fees are business-related, ask these practical questions:

1) Was the underlying transaction business income?
If you sold a product, provided a service, or collected a business invoice via the gateway, the related fees are business-related.

2) Was the account used wholly for the business?
If yes, the analysis is simple. If not, you may need to apportion fees between business and personal use.

3) Is the gateway tied to your business bank account and records?
If payouts land in a business account and you can match fees to specific sales, you are in a strong position.

4) Are you acting as a business or merely passing money through?
If you are collecting on behalf of others (marketplaces, agents, event organizers), you need to consider whether fees are your expense or the expense of the party whose revenue it is. This often depends on contracts and how you report revenue.

Two common ways to record gateway fees

From an accounting perspective, you can record gateway fees in two common ways. Either approach can work as long as you are consistent and your records accurately reflect revenue and expenses. The best choice depends on your bookkeeping system, reporting needs, and local rules.

Method 1: Record sales gross and fees as an expense

This method records the full customer payment as revenue and then records the gateway fee as a separate expense. It provides clear visibility into both gross sales and the cost of payment processing.

Example:
A customer pays £100. The provider charges £2.90 + £0.20 = £3.10. You receive £96.90 in your bank.

You record:

Revenue: £100
Payment gateway fees (expense): £3.10
Net bank deposit: £96.90

This method is often preferred because it makes your gross sales accurate (useful for VAT/GST thresholds, analytics, and performance reporting) and keeps fees transparently categorized as a business expense.

Method 2: Record net deposits as revenue (not recommended for many businesses)

Some businesses record only what arrives in the bank (the net amount) as revenue, ignoring fees as a separate expense. While it may appear simpler, it can create problems: your revenue is understated, fees disappear into the background, and sales tax reporting can become messy if taxes are calculated on the gross amount paid by the customer.

In some cases, bookkeeping tools that integrate with payment processors may default to net deposits unless configured properly. If you use this method, ensure it does not understate revenue where gross reporting is required and that it aligns with your tax reporting obligations.

VAT/GST/sales tax considerations: fees vs output tax

If you operate in a country with VAT, GST, or sales taxes, payment gateway fees can interact with tax reporting in ways that confuse even experienced business owners. Here are the practical points to watch:

1) Your customer’s payment is typically the taxable amount (where applicable).
If you charge VAT/GST on your sale, it is usually calculated on the price you charge the customer, not the net after gateway fees. Recording sales gross helps avoid accidental underreporting.

2) Fees may or may not include VAT/GST.
Some payment providers charge VAT/GST on certain services; others may treat some fees as exempt financial services depending on local rules. Your statements might show fees “inclusive of tax,” “exclusive of tax,” or with tax listed separately. If you can reclaim input tax, you generally need a valid tax invoice or appropriate documentation. The practical step is to read your provider’s invoices/statements carefully and ensure your bookkeeping captures tax correctly.

3) Cross-border fees can have different tax treatment.
If your provider is overseas or if you’re charged in a different country, reverse charge mechanisms or place-of-supply rules might apply. For small businesses, this often manifests as “no VAT charged” with a note about reverse charge (where relevant). Whether you must account for that depends on your local regime and registration status.

4) Tips and donations can complicate things.
If your “payment” includes a tip, donation, or service charge, the tax treatment of that amount may differ from the main sale. Gateway fees on those amounts are still costs of collecting the payment, but you must ensure you treat the underlying income correctly for tax purposes.

When payment gateway fees might not be fully claimable

While gateway fees are usually deductible, there are scenarios where you cannot claim them at all, or you can only claim part of them. These cases often revolve around personal use, mixed use, or transactions that are not part of your taxable business activity.

1) Mixed personal and business use

If you use the same payment gateway account for both business and personal transactions, you should generally only claim the portion of fees that relates to business activity. Apportionment can be done based on transaction volume, value, or a direct match if your reports allow you to tag transactions.

Practical approach: Export a transaction report, filter business receipts, total the related fees, and claim that total. If you cannot directly match, a reasonable proportionate method can work, but you should keep notes explaining the basis.

2) Non-business income (hobbies, personal sales, crowdfunding)

If you are not trading as a business (for example, selling personal items occasionally), the related fees are personal costs, not business expenses. If your activity is a hobby and not a business, the ability to claim expenses depends heavily on your local rules and whether the income is taxable. The safest approach is: if the income is not declared as business income, don’t claim the fees as business expenses.

3) Reimbursed fees

If a customer or a client reimburses you for gateway fees separately (for example, you invoice “card fee” as a surcharge), you typically have both income and expense. You may claim the fee as an expense, but you also must include the surcharge as income (and consider whether sales tax applies to that surcharge). Netting them off without proper recording can distort revenue and taxes.

4) Fees linked to disallowed transactions

If the underlying transaction is not allowable for tax purposes (for example, it relates to a personal expense run through the business), then the related gateway fee is also likely not allowable. The fee follows the character of the transaction.

5) Capital vs revenue: are any gateway costs “capital”?

Most gateway fees are revenue expenses (day-to-day running costs). However, certain setup costs or equipment purchases could be capital in nature.

Examples that can be capital-like:

Card terminals or point-of-sale hardware: If you buy a terminal outright rather than renting it, the cost might be treated as a capital asset and deducted through depreciation/capital allowances depending on your system.

Major software integration costs: If you pay developers to build a custom payment integration, that development work might be treated as an intangible asset in some contexts, especially if it provides enduring benefit. Many small businesses still expense such costs, but the correct treatment depends on local rules and materiality.

The ongoing per-transaction gateway fees and monthly service fees are almost always revenue expenses.

Chargebacks, refunds, and disputes: how to handle the fees

Refunds and chargebacks are where businesses most often misstate gateway fees. The correct treatment depends on what happens to the original transaction and whether any fees are returned.

Refunds

When you refund a customer, you usually reverse the sale (or record a sales return) and record any refund-related fee as an expense. Some processors return the percentage fee but keep the fixed component; others keep both; some charge an additional refund fee.

Example:
Customer pays £100; fees £3.10; you receive £96.90.
Later you refund £100. The provider returns £2.90 but keeps £0.20.

Practical bookkeeping outcome:

Sales return: -£100
Gateway fees expense retained: £0.20 (or adjust your fees expense account accordingly)

The aim is to reflect that you did not keep the sale revenue and you incurred (or retained) a cost for processing the attempt.

Chargebacks

Chargebacks typically remove the original sale amount from your balance, and the provider charges a dispute fee (for example, £15). If you win the dispute, the sale may be reinstated and the dispute fee may or may not be refunded.

Bookkeeping tip: Track chargebacks and dispute fees separately from routine gateway fees. This makes it easier to monitor fraud and customer service issues, and it avoids burying dispute costs inside your general processing fee total.

Currency conversion and cross-border fees

If you sell internationally, your provider may charge currency conversion fees, cross-border fees, and potentially apply its own exchange rate margin. These fees are generally still business expenses if they are incurred to collect business income. The complexity is recording them accurately:

1) Separate the fee from foreign exchange gains/losses where possible.
Your system might show a converted amount that differs from the spot exchange rate. The difference can be treated as part of the provider’s fee or as a foreign exchange difference depending on reporting clarity. For small businesses, treating the combined effect as “payment processing fees” is common, but you should be consistent.

2) Keep the underlying sale currency record.
If you need to report in a base currency, retain the transaction-level details showing the original currency, the converted amount, and any fee so you can reconcile totals.

3) Watch your bank’s treatment too.
If your provider pays out in multiple currencies to separate bank accounts, bank conversion fees might arise later when you convert. Those bank fees are also usually deductible if business-related.

How to prove the fees are legitimate business expenses

Claiming an expense is usually easy; proving it is where businesses stumble. If you are ever asked to justify the deduction, you want to demonstrate that the fees relate to business sales and that you have records supporting the amounts.

Useful evidence includes:

Monthly statements or invoices from your payment provider showing fee totals and transaction listings.

Transaction exports that show gross sales, individual fees, refunds, and chargebacks.

Bank statements that show payouts and match to settlement reports.

Bookkeeping entries that clearly categorize gateway fees and reconcile to statements.

Contracts or terms of service if you operate as an agent, marketplace, or split payments between multiple parties.

A simple, consistent filing habit—saving monthly statements in a “Payment Provider” folder—can turn a stressful audit question into a two-minute response.

Examples: common business scenarios

Real-life examples help clarify what’s claimable and how it might be recorded.

Example 1: Freelancer invoicing clients through a payment link

A consultant sends invoices and allows clients to pay by card through a payment link. Each invoice payment triggers a gateway fee. The consultant records the invoice amount as revenue and records the gateway fee as “merchant fees” or “payment processing fees.”

Claimable? Typically yes, because the fee is directly connected to collecting business income.

Example 2: Online store with refunds

An e-commerce shop runs seasonal promotions and has regular returns. The payment provider keeps the fixed fee on refunds, so the business ends up paying some fees even on returned items.

Claimable? Typically yes, because these are costs of accepting payments and managing returns as part of normal trading.

Example 3: A café using a card terminal with monthly rental

A café rents a card terminal and pays a monthly rental fee plus transaction fees.

Claimable? Typically yes. The rental and transaction fees are ordinary operating expenses. If the café buys the terminal outright, the purchase may be treated as a capital asset depending on local rules.

Example 4: Mixed-use account for a side business and personal fundraising

A person runs a small craft business but also uses the same payment account to collect money for a personal charity run. The provider charges fees on both types of transactions.

Claimable? The fees related to the craft business are typically claimable; the fees related to personal fundraising are typically not. The person should separate the fees by transaction category or apportion based on records.

Example 5: Marketplace seller vs marketplace operator

A marketplace platform collects payments from customers, deducts gateway fees, and pays sellers their share. The platform may charge sellers a commission.

Claimable? It depends on who is the “merchant of record” and how the arrangement is structured. If the platform is the seller to the customer, it typically records the gross sale and the gateway fee as its expense, then records payouts to sellers as cost of sales or similar. If the platform is an agent collecting on behalf of sellers, the platform might record only its commission as revenue, and fees might be treated as pass-through costs. The contractual and legal reality matters here, not just the cash flow.

Common mistakes that can trigger problems

Even when fees are claimable, errors in how you track them can lead to incorrect tax reporting. Here are the mistakes to avoid:

Underreporting revenue by recording only net payouts

If you record only the amount that hits your bank, you may understate your turnover. This can affect tax filings, thresholds for VAT/GST registration, lender reporting, and business performance metrics.

Double-counting fees

Some accounting integrations import fees automatically, but you might also manually enter them from statements. This can double count expenses. Reconcile your “gateway fees” account to the provider’s monthly total to confirm you have one—and only one—set of fee entries.

Ignoring chargeback fees and dispute outcomes

Chargebacks are easy to miss because they might be deducted from your balance rather than paid as a separate bill. If you do not record them properly, your revenue and expenses can become muddled. Use a dedicated category for chargeback/dispute fees.

Misclassifying terminal purchases and setup costs

Rentals and transaction fees are operating expenses. Hardware purchases and large integration projects might need different treatment. If in doubt, record clearly and consult local rules.

Poor documentation

Relying on a single end-of-year summary with no transaction detail can be risky. Save monthly statements and keep exportable reports so you can explain how totals were derived.

Best-practice bookkeeping workflow

Here is a practical workflow that works for many small businesses:

1) Create a dedicated expense category: “Payment processing fees” or “Merchant fees.”

2) Export monthly statements: Save them to a consistent folder structure (e.g., Payment Provider > 2026 > January).

3) Record sales gross: Use an integration or manual journal entries to ensure revenue reflects what customers paid, not just what you received after fees.

4) Reconcile payouts: Match the provider’s payout amounts to your bank deposits. If there are timing differences, use a clearing account to avoid confusion.

5) Track refunds and chargebacks separately: Use distinct categories for “Refunds/returns,” “Chargeback fees,” and “Payment processing fees.”

6) Review for mixed use: If any personal transactions exist, isolate them and exclude related fees from business expense claims.

What if the payment provider bundles fees or shows them in confusing ways?

Many providers present fees in ways that are great for product managers but not great for accountants. You might see “net fee,” “platform fee,” “interchange,” “assessment,” “scheme fees,” or “blended rate.” Don’t panic. The essential goal is to capture the total cost of processing payments that you incurred for business sales.

Practical steps:

Use the provider’s “fees” report: Most platforms offer a report that totals fees by day, week, or month. Export it and reconcile it to your bookkeeping account.

Prefer monthly totals: If transaction-level detail is too granular, monthly fee totals can be recorded as one line item per month (as long as you can evidence the total).

Keep “other fees” visible: Don’t let chargebacks or conversion fees hide inside a generic line. If the amounts are material, break them out into separate categories for insight and easier review.

Can you claim gateway fees if you are a sole trader, partnership, or limited company?

In general, business-related gateway fees are usually claimable regardless of business structure. What changes is how you report profits and where the expense appears in your accounts.

Sole traders/self-employed: Fees are usually included as allowable business expenses against business income (subject to local rules). Mixed-use issues are particularly important because personal and business finances often overlap.

Partnerships: Fees incurred in partnership trading are typically deducted in calculating partnership profit, then allocated to partners according to the partnership agreement.

Limited companies/corporations: Fees are typically deductible in calculating taxable profits, assuming they are incurred for the trade. Good internal controls and documentation are helpful, especially if multiple people manage payments and refunds.

What about “card surcharges” passed on to customers?

Some businesses add a surcharge for card payments to cover processing costs. Whether you do this depends on local consumer laws, card scheme rules, and customer expectations. From a tax perspective, if you charge a surcharge, it is generally business income. The gateway fee is generally a business expense. They can “offset” economically, but they should still be recorded separately so your accounts reflect what happened.

Also consider sales tax/VAT: in many jurisdictions, surcharges may be treated as part of the consideration for the sale and therefore taxable. Ensure your invoicing and point-of-sale setup handles this correctly.

How to handle processing fees on deposits, subscriptions, and recurring billing

Recurring billing can generate a steady stream of fees. The principles remain the same, but you should watch for two practical issues:

1) Timing: Subscription payments might be captured on one date, fees recorded on another, and payouts made on a third. A clearing account helps match them without distorting monthly income.

2) Failed payments: Some providers charge small fees for failed or retried payments, or for account updater services. These are generally still business-related if they arise from your attempt to collect business subscription income.

Year-end and tax return tips

At year-end, your goal is to ensure your totals are accurate and reconcilable. Here are practical checks:

Compare your bookkeeping “gateway fees” total to provider annual summaries: Many providers offer an annual fee summary. Your ledger total should be close, allowing for timing differences.

Reconcile revenue to sales reports: If you record gross revenue, confirm it matches your store/platform sales report.

Review large or unusual fees: Big chargeback spikes, unusually high conversion fees, or one-off penalties should be understood and documented.

Check for personal transactions: Mixed-use issues often get forgotten until year-end. Scan transaction lists for anything clearly non-business and adjust.

Keep your evidence: Store statements and exports with your year-end working papers.

Quick answers to common questions

Can I claim payment gateway fees as expenses?
In most cases, yes—if they relate to collecting business income and are not personal in nature.

Do I claim the fees even if the provider deducts them before payout?
Yes. Even if you never “see” the money, the fee is still a cost of earning that revenue. Recording sales gross and fees separately often makes this clearest.

What if I get charged fees on refunded sales?
If the provider retains some fees on refunds, those retained amounts are generally still business expenses because they were incurred in the course of trading.

Can I claim chargeback fees?
Usually yes, if they relate to business transactions. Track them separately so you can monitor disputes.

What if I use the account for personal payments too?
Only claim the business portion. Use reports to allocate fees fairly and keep notes explaining your method.

Practical checklist: claiming gateway fees with confidence

Use this checklist to make sure you’re on solid ground:

1) Confirm the fees relate to business sales.

2) Save monthly statements/invoices from the provider.

3) Record sales gross (recommended) and fees as a separate expense.

4) Reconcile provider payouts to bank deposits.

5) Separate chargebacks, refunds, and currency conversion fees if material.

6) Apportion fees if the account is mixed-use.

7) Review year-end totals and keep a clear audit trail.

Final thoughts

Payment gateway fees are a normal cost of doing business in a world where customers expect to pay by card, wallet, or bank transfer online. In most ordinary trading situations, you can typically claim business-related payment gateway fees as deductible expenses, because they are incurred to generate or collect business income. The biggest risks are not usually whether the fees are claimable, but whether they are recorded correctly and supported by good documentation—especially where refunds, chargebacks, cross-border sales, or mixed personal use are involved.

If you build a simple habit of recording sales gross, categorizing fees consistently, reconciling payouts, and saving monthly statements, you will not only strengthen your tax position but also gain better visibility into your true cost of sales. That visibility can help you price more accurately, choose the right payment provider, and improve profitability over time.