Surcharge Rules in the UK: What You Need to Know

05 November 2024

Written by Libby James

Libby James is co-founder, director and an expert in all things merchant services. Libby is the go-to specialist for business with more complex requirements or businesses that are struggling to find a provider that will accept them. Libby is regularly cited in trade, national and international media.

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UK Surcharge Rules

When it comes to accepting payments, whether by card, electronic transfer, or other methods, there’s always a cost involved for businesses. Many business owners account for these costs as part of their pricing strategy. However, some look to offset these processing costs by adding surcharges for certain payment methods. While this approach may sound straightforward, UK rules around surcharges are strict, and it’s essential to know what is and isn’t allowed.

Let’s explore what the rules mean for your business and how you can stay compliant.

Ban on Surcharges for Common Payment Methods

In the UK, businesses are not permitted to add surcharges for payments made with consumer credit or debit cards, or through electronic payment services (such as PayPal) when a customer is paying for goods or services. This rule applies to any payments where the card or electronic payment service is used, regardless of the buyer’s purpose. So, if a sole trader buys a product using their personal credit card, the ban applies, even if it’s technically a business expense.

Which Payment Methods Can Be Surcharged?

Surcharges are allowed for other payment methods, such as cash, cheques, direct debits, or standing orders. However, any surcharge you add must reflect your actual cost for processing that payment. The law prohibits inflating fees beyond what it costs your business to handle these payments. You’re allowed to calculate an average cost if that better represents your processing fees.

Transparency is critical here—customers should clearly see any surcharges before deciding to buy. Hidden fees can lead to issues with trading standards and damage customer trust. Disclose surcharges alongside product prices, particularly for payment methods where additional fees might surprise your customers.

Application of the Regulations

The UK’s surcharge regulations aim to protect consumers, not businesses. So, if you’re dealing with another business, this surcharge limit doesn’t apply. But remember, a consumer is anyone purchasing goods or services primarily outside their trade or profession. This distinction matters because it affects whether the surcharge rules apply to a transaction or not.

These restrictions apply no matter where or how the transaction takes place—whether online, in-store, or even over the phone.Exemption for Commercial Cards

When it comes to commercial cards, the surcharge regulations differ from those for consumer payments. Businesses are allowed to add surcharges for payments made using corporate or commercial debit and credit cards, which are commonly used by companies to manage expenses. This exemption recognises that these transactions are business-related and not subject to the same consumer protections. However, any surcharges applied to commercial cards should still reflect the actual cost of processing, ensuring transparency and fairness. If your business frequently handles commercial transactions, this exemption offers a way to offset processing costs that come with corporate card payments.

Exemption for Commercial Cards

Excluded Contracts and Exceptions

Some contracts are exempt from the surcharge rules, allowing businesses in specific sectors to impose surcharges that otherwise wouldn’t be allowed. These sectors include:

Social services (like childcare and support for those in need)
Health services provided by professionals
Banking and credit services, including insurance and pensions
Residential rental agreements
Gambling services (regulated under the Gambling Act 2005)
Timeshares, long-term holiday products, and similar arrangements
Food and beverage delivery rounds for household consumption

If your business operates in one of these sectors, you may be able to apply surcharges that are otherwise restricted.

Consumers’ Right of Redress

Consumers have the right to claim back any surcharge that isn’t allowed by the regulations. If your business has mistakenly charged a banned fee, the consumer can request a refund and, if necessary, pursue legal action to recover the amount. This right ensures that consumers aren’t unfairly charged and helps maintain trust and fairness in the market.

Why Do Some Businesses Set a Minimum Card Payment?

Many businesses enforce a minimum card payment to avoid high processing fees. However, this approach can be misguided. Processing fees differ based on providers, with some charging a fixed fee (which can cut into profits on smaller transactions) and others taking a percentage. A better solution could be to find a payment provider with lower or more flexible fees.

Minimum card spending is also used to save time at the till. While this may help reduce queues, contactless payments and an upgraded point-of-sale (POS) system could significantly speed up transactions without the need for a minimum payment threshold.

Tips for Lowering Payment Processing Fees

If you’re looking to reduce the fees your business pays for processing payments, there are a few strategies that can make a difference. Consider shopping around for the best rates with different providers or speak with our payment specialists at Merchant Advice Service to compare options tailored to your business needs. They can guide you in selecting a provider with competitive fees, understand hidden costs, and negotiate better terms on your behalf. Lowering these expenses can improve your margins without passing costs on to customers.