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

Understanding business-related payment processing fees

Payment processing fees are a normal cost of doing business for many companies, especially those that accept card payments, online transfers, digital wallets, buy-now-pay-later services, and marketplace payments. In practice, these fees can show up in many forms: a percentage of each sale, a fixed fee per transaction, monthly gateway charges, terminal rental, chargeback fees, cross-border surcharges, currency conversion fees, and even “platform” or “service” fees where the payment provider bundles multiple services together.

If you run a business, you may wonder whether you can claim these costs as expenses. The short, practical answer is usually “yes” when the fees are incurred wholly and exclusively for your business activities, properly evidenced, and treated correctly in your bookkeeping and tax returns. But there are important details that can affect how much you can claim, how you record it, whether VAT (or equivalent consumption tax) can be reclaimed, and how to handle mixed personal and business use.

This article explains what counts as business-related payment processing fees, when they are deductible, what kinds of records you should keep, and common mistakes to avoid. It also covers situations involving sole traders, limited companies, freelancers, online sellers, and businesses operating across borders.

What are payment processing fees, exactly?

Payment processing fees are charges you pay to a provider for enabling customers to pay you. Depending on your setup, you might deal with a bank, a merchant acquirer, a payment gateway, a payment service provider, a marketplace, or multiple intermediaries. Each may apply fees that can be deductible business expenses if they relate to the generation of taxable business income.

Common examples include:

1) Card processing fees: Percentage and per-transaction charges for debit or credit card payments, including interchange-related costs bundled into a single “merchant service charge.”

2) Payment gateway fees: Monthly subscription or per-transaction charges for the gateway that routes payments securely from your website or app.

3) Digital wallet fees: Charges for accepting wallet payments such as mobile tap-to-pay or online wallet transactions.

4) Point-of-sale (POS) terminal costs: Rental fees, maintenance plans, replacement costs, and connectivity fees, where these are tied to payment acceptance.

5) Chargeback and dispute fees: Fees imposed when a customer disputes a transaction, regardless of whether you win or lose the dispute.

6) Cross-border and currency conversion fees: Additional charges for accepting foreign cards, settling in a different currency, or converting funds.

7) Marketplace payment fees: Fees withheld by platforms that process payments on your behalf (often shown net of fees when they pay you).

8) Bank transaction fees for business accounts: Charges that are clearly connected to receiving customer payments or paying processing providers.

Many businesses see these costs as “invisible” because the provider simply pays out the net amount after fees. From a tax perspective, however, it’s important to understand the gross income and the fees separately, because you typically need to report the gross sales and then claim the fees as expenses (rather than reporting only the net payout as sales).

The general rule: Are they deductible business expenses?

In many tax systems, an expense is deductible if it is incurred for the purposes of the trade or business, and not of a capital nature. Payment processing fees generally fall into the category of operating expenses, because they are recurring costs directly linked to making sales and collecting revenue.

In plain terms, you can usually claim payment processing fees as a business expense when:

They are incurred to accept customer payments for business sales. If the fee exists because you sold something or collected income in the course of your business, it is typically a deductible cost.

They are not personal. Fees from personal spending or personal transfers are not deductible, even if paid from the same account.

They are properly recorded and supported by evidence. You should be able to show statements, invoices, settlement reports, or other documentation that identifies the fee and links it to business activity.

They are treated consistently. Your bookkeeping should reflect sales and fees in a way that is coherent and reconcilable to bank deposits and merchant statements.

Because these fees are so closely connected to revenue, most businesses can claim them as “bank charges,” “merchant fees,” “payment processing fees,” or “transaction fees” depending on the chart of accounts and reporting requirements.

Revenue reporting: Gross sales vs net payouts

One of the most common mistakes is recording only the net amount that lands in the bank as “sales.” For example, imagine you make a sale of 100. The payment processor deducts 3 in fees and deposits 97 into your bank account. If you record sales as 97, you understate revenue. The correct approach in most cases is to record:

Sales revenue: 100

Processing fee expense: 3

Bank deposit: 97

This method keeps your revenue accurate and makes your expense claim clear. It also helps when preparing financial statements, calculating margins, and reconciling merchant reports. It can matter for VAT/GST calculations as well, because sales taxes are often calculated on the gross sale, not on the net amount after fees.

Some platforms bundle various charges and deduct them from payouts. Even then, the principle typically remains: record gross sales (as per order totals) and then record the fees as expenses. If the platform combines fees for payments, listing, shipping labels, advertising, or subscriptions, separate them where possible. If separation is not possible, keep evidence and use reasonable categorisation based on the statements provided.

What about VAT, GST, or sales tax on payment processing fees?

Whether you can reclaim VAT/GST (or claim input tax credits) on payment processing fees depends on local rules and how the fee is classified. In many jurisdictions, certain financial services may be exempt from VAT/GST, meaning the provider may not charge VAT on the fee, and you therefore cannot reclaim it. In other cases, the provider may charge VAT on some components (like software subscriptions) but not on others (like the core transaction processing).

Practically, you should look at your provider’s invoice or statement:

If VAT/GST is charged: and you are registered and the cost relates to taxable business activity, you may be able to reclaim it (subject to local rules).

If VAT/GST is not charged: there is nothing to reclaim, but the fee may still be deductible for income tax or corporate tax purposes.

If the fee is bundled: some providers show a single line “service fee” without tax detail. Others break out taxable and exempt portions. The more detailed the statement, the easier it is to treat it correctly.

Because tax treatment varies widely, it’s important to be consistent and to retain the statements showing whether tax was charged. If you operate internationally or use a provider based in another country, the place-of-supply rules can add complexity, especially for digital services. If you are unsure, it may be worth asking your accountant how these fees are treated in your jurisdiction.

Sole traders, freelancers, and self-employed individuals

If you are self-employed, payment processing fees are often an everyday cost. You might invoice clients and accept card payments through an online link, take payments via your website, or use a reader at events. In most cases, the fees are deductible as long as the underlying income is business income.

Key points for self-employed people:

Match fees to business income. If you accept client payments for freelance work, your merchant fees are usually deductible because they are directly tied to earning that income.

Keep the evidence. Download monthly statements from your payment provider and store them with your records. Bank statements alone may not show the fee detail if payouts are netted off.

Separate personal and business use. If you use the same payment provider for side projects and personal collections (for example, collecting money from friends), keep those separate. Mixed-use accounts create messy allocations and can invite questions if reviewed.

Be careful with “convenience fees” charged to customers. If you pass on a fee to the customer (for example, adding a surcharge for card payments), that surcharge is generally part of your business income. The processor fee you pay is still an expense. You should record both accurately.

Limited companies and incorporated businesses

For limited companies, the principle is similar: payment processing fees that the company incurs to collect business income are generally deductible for corporate tax purposes. Where the company is VAT/GST registered, the treatment of tax on the fees depends on the nature of the supply and local rules.

For companies, the biggest practical issue is often internal controls and documentation:

Ensure the contract is in the company name (where possible) and fees are charged to a company account.

Keep board or director oversight appropriate to the scale of spending. Payment processing fees can be significant if transaction volumes are high, so it can be useful to review merchant statements regularly.

Account for refunds and chargebacks correctly. Companies often see a large volume of refunds and disputes. Clear accounting helps ensure sales are not overstated and fee claims are correct.

Mixed-use situations: When you can only claim part of the fees

Sometimes payment processing fees are not purely business-related. This can happen if you use one payment account for business and non-business activity, or if you run a business that includes both taxable and non-taxable income streams. In such cases, you may need to apportion the fees.

Common mixed-use scenarios include:

Personal and business transactions through one processor. If you occasionally use the same payment link to collect money for non-business purposes, you should not claim fees tied to those personal collections. Ideally, separate accounts make this much easier.

Partly private events. Suppose you sell tickets for a business workshop and also collect money for a private group trip in the same account. Fees related to the private trip are not business expenses.

Partly exempt activities. In some jurisdictions, if your business provides certain exempt financial or educational services, input tax recovery on fees might be restricted, or expenses may need special treatment. Even if the fee is deductible for income tax, VAT/GST recovery could be limited.

If you must apportion, do it in a methodical and reasonable way. For example, allocate fees based on the proportion of business transaction value to total transaction value. Document your method and keep the supporting statements.

Subscription fees, terminals, and equipment: Expense or capital?

Not every cost associated with payment acceptance is treated identically. While per-transaction processing fees are typically operating expenses, other items may have different treatment depending on how they are structured.

Gateway subscriptions and software plans: These are usually operating expenses, claimed in the period they relate to.

Terminal rental: Ongoing rental is typically an operating expense.

Terminal purchase: If you buy a terminal outright, it may be treated as a capital asset in some systems, which could be deducted through depreciation/capital allowances rather than claimed fully immediately. Some small businesses may be able to claim immediate relief under small asset rules, but that depends on local regulations.

Installation and setup fees: Often treated as operating expenses, but sometimes they can be capitalised if they are part of acquiring a capital asset or setting up a long-term system. The correct treatment depends on the specifics and materiality.

In practice, many small businesses treat modest setup fees and low-cost devices as expenses, but you should follow the rules and your accounting policy. If the amount is large, or you are audited, a consistent, well-supported approach matters.

Chargebacks, disputes, and fraud-related fees

Chargeback fees and dispute fees are unpleasant but common. In most cases, these fees are deductible as business expenses because they arise from the process of accepting customer payments. The underlying disputed sale may need careful accounting, though.

Here’s how to think about it:

Chargeback fee: usually a deductible expense.

Reversal of the sale: if the original sale is reversed, you should reflect that reversal (or refund) in revenue, so your income isn’t overstated.

Fraud losses: if you lose goods or services due to fraudulent transactions, the treatment can be more complex. Often, a genuine business loss may be deductible, but the documentation is critical. You may need to show that the loss occurred in the course of business and that you took reasonable steps to prevent it.

The key is to keep a clear audit trail: order records, shipping confirmation, dispute correspondence, and processor reports. Even if you never face a formal review, this recordkeeping helps you manage profitability and understand risk.

Refunds and how they interact with processing fees

Refunds can create confusion because different processors handle fees differently. Some refund the original processing fee, some refund only part, and some keep the fee entirely. From a tax perspective, what matters is that your accounting reflects reality:

If you refund a customer: your sales revenue should reduce accordingly (or be recorded as a negative sale).

If the processor retains the fee: you still have an expense, even though the sale was refunded. That expense is often deductible because it is part of doing business.

If the processor refunds the fee: your expense should be reduced by the refunded amount (or you record a separate credit/negative expense).

Accurate bookkeeping avoids accidentally claiming fees you didn’t ultimately pay, or failing to claim fees you did pay on refunded transactions.

Online marketplaces and platforms: Fees withheld before payout

If you sell through online marketplaces, you often receive payouts net of multiple fees: payment processing, marketplace commission, listing fees, advertising, shipping label charges, and sometimes reserves or rolling holds. These platforms often provide settlement statements, transaction reports, and monthly invoices.

The general approach is:

Record gross customer sales based on the order totals the customer paid.

Record each fee category as an expense where possible: payment processing fees, platform commissions, advertising, shipping costs, subscription fees, etc.

Reconcile net payouts to your bank deposits using the settlement statements.

When you can clearly identify the “payment processing” element, you can claim it as such. If the platform bundles payment processing within a single commission fee, you can still generally claim the total commission as a deductible expense (assuming it is wholly business-related). The important thing is not the label, but the underlying fact: it is a cost incurred to generate business revenue via the platform.

Cross-border sales and currency conversion fees

Businesses selling internationally may pay additional charges, including foreign card fees, international settlement fees, and currency conversion fees. These are usually deductible because they are a cost of receiving business revenue.

However, international transactions can complicate bookkeeping because exchange rates affect the amounts you record as sales and fees. A few practical tips:

Use consistent exchange rate methods. Many businesses use the rate applied by the payment processor for settlement, while others use a standard published rate at the transaction date. Either can be acceptable depending on local rules, but consistency matters.

Track conversion fees separately if possible. Some processors show conversion fees explicitly, while others embed them in the exchange rate spread. If it’s embedded, you may not have a separate “fee” line, but you still effectively pay for conversion through a less favorable rate.

Be careful when reconciling. Differences between order currency and settlement currency can create exchange gains or losses. These are typically accounted for separately from processing fees.

Recordkeeping: What evidence should you keep?

To claim expenses confidently, keep documents that show the fees and how they relate to your business. The exact requirements vary by jurisdiction, but generally strong records include:

Payment provider statements or settlement reports. These show gross transactions, fees withheld, refunds, and net payouts.

Invoices for monthly subscriptions or terminal rental. If your provider issues VAT/GST invoices, store them.

Bank statements. Useful for reconciling deposits and verifying that the payouts were received.

Order reports from your website or platform. These show that the transactions were business sales, not personal receipts.

Contracts or account agreements. Helpful if you need to demonstrate the nature of the charges, especially where fees are bundled.

Good recordkeeping is not just for compliance; it also helps you spot fee increases, negotiate better rates, and understand the true profitability of different sales channels.

How to categorise payment processing fees in your accounts

There is no single universal chart of accounts, but many businesses use categories such as:

Merchant fees / card processing fees

Payment gateway fees

Bank charges

Platform fees / marketplace commissions

Chargeback fees

Foreign exchange fees

Choose categories that help you manage the business. If you sell across multiple channels, separate categories can show you which channels are most expensive. If you are small and want simplicity, a single “payment processing fees” account may be enough, as long as it is supported by statements.

Whatever you choose, consistency is more important than perfection. Tax authorities typically care that the expense is legitimate, business-related, and supported. Internally, you care that you can analyze the costs and reconcile accounts.

Examples of deductible payment processing fees

To make this more concrete, here are examples of fees that are typically claimable, assuming they relate to business sales and you have supporting records:

Example A: A hair salon uses a card terminal. The acquirer charges 1.5% plus a small fixed fee per transaction, and a monthly terminal rental. These fees are deductible operating expenses.

Example B: An online coach sends payment links to clients and pays a payment provider 2.9% plus a fixed amount per payment. These fees are deductible, provided the payments relate to coaching income.

Example C: A small e-commerce store sells internationally. The payment processor charges a cross-border fee and currency conversion fee. These costs are deductible expenses, and exchange differences are recorded separately.

Example D: A marketplace seller receives payouts net of platform fees. The platform provides statements showing commissions and payment processing charges. The seller records gross sales and claims the fees as business expenses.

Common mistakes and how to avoid them

Even though the basic rule is straightforward, businesses often trip up on the details. Here are frequent issues and practical fixes:

Mistake 1: Recording net payouts as sales. This understates revenue and can distort profit metrics. Fix it by recording gross sales and recording fees separately as expenses.

Mistake 2: Missing fees that are “hidden” in statements. Some providers net fees daily, others monthly, and some split fees across multiple lines. Fix it by downloading full monthly reports and reconciling.

Mistake 3: Claiming personal transaction fees. If personal collections or hobby income run through the same account, you could overclaim. Fix it with separate accounts or a clear allocation method.

Mistake 4: Poor documentation. Bank deposits alone may not show the fee breakdown. Fix it by retaining merchant statements, invoices, and settlement reports.

Mistake 5: Incorrect VAT/GST treatment. Assuming you can reclaim VAT when no VAT was charged, or missing VAT on taxable subscription services, can cause errors. Fix it by checking invoices and understanding which elements are taxable.

What if the fee is charged to your personal card or personal bank account?

Sometimes a business owner pays for a payment service subscription using a personal card, or the provider withdraws fees from a personal account. This is not ideal, but it does not automatically mean the expense is non-deductible. In many tax systems, the key question is whether the expense was incurred for the business.

That said, paying business costs personally can create bookkeeping complications. For example:

Sole trader: You may record the expense and treat it as paid personally, but still claim it if it is a valid business cost.

Company director: If you pay a company expense personally, it may be recorded as a director’s loan or reimbursable expense, subject to company policies and tax rules.

To keep things clean, it is usually better to pay these fees from a dedicated business account. If you do use a personal account, keep the invoice and document why it is a business cost.

Are payment processing fees ever not claimable?

There are scenarios where fees may be non-deductible or restricted. These usually involve one of the following issues:

Personal use: Fees relating to personal transactions are not deductible.

Not connected to business income: If the fee is for a non-business activity, it is not claimable.

Capital nature or special rules: If a payment-related cost is part of acquiring a significant asset or setting up a long-term system, it may need capital treatment rather than an immediate deduction, depending on rules.

Penalties and fines: Some “fees” may actually be penalties for non-compliance (for example, regulatory fines). Tax treatment of penalties varies, and they may be disallowed in some jurisdictions.

Most ordinary processing fees for legitimate business sales remain deductible, but if you see unusual charges, it’s worth understanding their nature and recording them appropriately.

Practical checklist for claiming payment processing fees

Use this checklist to keep your claims accurate and easy to support:

1) Download monthly statements from each payment provider or platform.

2) Record gross sales from your sales system or platform reports.

3) Record fees separately as payment processing expenses (or similar categories).

4) Reconcile net payouts to your bank deposits.

5) Track refunds and chargebacks so sales and fee records stay accurate.

6) Keep VAT/GST invoices where tax is charged, and record tax correctly.

7) Separate personal and business transactions or use a documented allocation method for mixed use.

8) Review fee changes annually to ensure you are still on the best pricing plan.

Planning and optimisation: Reducing fees without risking compliance

While the focus of this article is expense claims, many business owners also want to reduce these fees. From a compliance perspective, it’s fine to shop around or negotiate rates. Just ensure your accounting stays accurate.

Ideas that often help businesses manage processing costs include:

Negotiating merchant rates as volume increases.

Choosing pricing models that fit your average transaction size (flat rate versus interchange-plus where available).

Encouraging lower-cost payment methods where permitted and appropriate.

Reducing chargebacks by improving descriptors, customer communication, delivery tracking, and refund policies.

Using consolidated reporting to avoid missing fees across multiple sales channels.

Even if you reduce fees, remember to keep the same disciplined approach to reporting gross sales and recording fee expenses.

Conclusion

In most cases, you can claim expenses for business-related payment processing fees because they are ordinary operating costs incurred to collect revenue. The key is ensuring the fees are genuinely business-related, recorded correctly (typically with gross sales reported separately from fee expenses), and supported by clear documentation such as settlement statements and invoices.

Where things get complicated—mixed-use accounts, bundled platform charges, international sales, and VAT/GST treatment—good recordkeeping and consistent accounting practices are your best defense. If you keep clean records and understand how your provider structures fees, claiming payment processing costs becomes a straightforward part of managing your business finances.