card handling "fee" qn

[phatmanace]

random (pedantic) question.

have seen quite a few shops now with little signs by the tills saying that if you pay by card, 1.5% {varies} of you transaction goes to some card handling company, and the rest goes to the actual company. OFten the card handling company looks like a subsidiary of the main firm.

I was just curious as to the rationale of this? {and, I guess more importantly, why as a consumer I'd care}

-Ace

[E36GUY]

The card-handling co is whomever is administering the till system. As a business, you want/need to be able to accept credit cards as payment but you need the kit to make it happen. Web based companies like PayPal charge about 3.5% per transaction and allow businesses to quickly get set up to receive credit cards.

There are numerous systems out there but you can get the same from your Bank. You'll see Barclays chip and pin remotes in many bars for example. Again, there is a small start up cost then a small percentage which I would imagine varies by how big a user you are of the system whereby you'd negotiate. You can pay in Sainsburys for 50p on your debit card but some places (bars) might have a £10 minimum.

[mcflurry]

AFAIK there is probably a loophole that card payments are VAT exempt, so saves the company the VAT on the 2.5% charge...

[skwdenyer]

mcflurry said:

AFAIK there is probably a loophole that card payments are VAT exempt, so saves the company the VAT on the 2.5% charge...

The law allows credit card transactions to be surcharged to pass on the cost of handling them. It does not allow debit card transactions to be surcharged in the same way.

Yes, financial handling fees are VAT-exempt (no VAT on bank charges, for instance). What many companies did was to set up, say, Bloggsco Financial Services Ltd to handle payments for Bloggsco. They would charge ever-higher charges (up to 10% in some cases) for card handling, in order to lower the marginal VAT rate on the sales.

Needless to say, this came under scrutiny. Because the charge wasn't a surcharge, but instead signs said things like "the amount you pay will be the same, whatever the mode of payment", the courts AFAIK ruled that no legitimate service had been provided to the customer, therefore the scheme failed.

There are variations on the theme which are compliant, but it is tricky. You can't just say "all your payments, whatever kind, are processed by this other company" as that would imply a surcharge for any valid means of payment, which would be illegal.

But, yes, that't the gist of it - it is a VAT, err, "fiddle".

As regards actually paying a surcharge for a credit card payment (Ikea do this, I believe?), that is legal, and a legitimate way for a retailer to lower their prices. It is a bit of an anachronism, however, since card-handling fees have come way down in the last few years, whilst cash-handling is now expensive