Payment Surcharges – The New Regulations
Payment surcharges are often used by SME’s to offset the costs of payment processing. New amendments to the regulations come into effect on 13 January 2018. There are severe penalties for non-compliance in addition to any civil action that may be taken by the Consumer. Your Bookkeeper should be aware of the new regulations and how they affect your business.
Dealing With Consumers
Most commonly a charge is applied when using the following:-
- consumer credit cards
- debit cards
- non card-based payment i.e. mobile phone-based based payments
- electronic payments such as PayPal
Under the new amendments to the regulations traders are banned from imposing any surcharge in addition to the advertised price. This ban applies to all payments made using the methods mentioned above. It covers goods and services, and also tax payments to HMRC and DVLA. Corporate cards issued for business expenditures such as office equipment and supplies or services are exempt from these regulations.
The Regulations apply to all contracts no matter how or where they are concluded, including on or off business premises. The ban applies when the payment service providers of both the merchant and the consumer are located within the EEA.
Traders are allowed to charge other fees such as delivery, booking and administrative fees. This is on the strict condition that these are the same regardless of the payment method. The price of any goods, services or digital content must be quoted inclusive of any non-optional payment surcharges whenever they are to be applied. Payment surcharges must be clearly stated before the consumer takes any steps towards purchasing.
The guidance issued also confirms that the original ban on excessive payment surcharges in the Consumer Rights Directive, remains in place. It may still be relevant where the new bans do not apply.
Other Payment Methods
Businesses are allowed to make a charge for other retail payments such as cash, direct debit, standing order or cheque. If payment surcharges are imposed for using a specific method of payment they must be limited to the direct cost borne by the trader.
The amount of the surcharge can be based on the average cost incurred in processing payment i.e. a standard charge for a direct debit transaction, based on average direct debit costs. Transparency is a requirement and all costs must be clearly pointed out before the transaction takes place.
The restriction on the amount of a payment surcharge for other methods of payment does not apply in certain cases such as:-
- Business-to-business transactions
- Contracts for the supply of foodstuffs, beverages or other goods intended for current consumption in the household that are supplied by a trader on frequent and regular rounds to the consumer’s home, residence or workplace
- Contracts concluded by means of automatic vending machines or automated commercial premises
- Residential Rental Accommodation
- Gambling as defined by the Gambling Act 2005
- Contracts for services of a banking, credit, insurance, personal pension, investment or payment nature
- Contracts for the construction of new buildings or the construction of substantially new buildings (conversions)
The guidance suggests that businesses may choose to:
- Absorb the costs
- Not accept certain payment methods
- Increase the price of goods or services
- Negotiate lower fees with their payment service provider
Penalties For Non-Compliance
Consumers are entitled to receive a refund of any unlawful surcharge they have paid. They are entitled to take legal action if necessary. Consumer enforcement authorities, such as Trading Standards, also have the power to take civil enforcement action. The maximum penalty is a fine and two years’ imprisonment.
The above is a summary only of the main points, for full information you should consult the documentation issued by The Department for Business, Energy & Industrial Strategy which you can download here Payment Surcharge Guidance
If you need further assistance on how to deal with the new regulations for accounting purposes please contact us and we will be happy to help.