Card payment costs, tipping and till connections for hospitality

01

What does it cost a pub or restaurant to take a card payment?

Each card payment carries a merchant service charge made of interchange, scheme fees and your provider's margin, plus extras such as terminal rental. Interchange on UK consumer cards is capped, so differences between quotes sit in the margin and the extras.

UK law caps interchange, which goes to the customer's bank, at 0.2% of the transaction for consumer debit cards and 0.3% for consumer credit cards. Scheme fees and your provider's margin are added on top.

The Payment Systems Regulator found that providers' pricing and headline rates vary significantly, which makes prices hard to compare, and that merchants with card turnover up to £50 million could save by shopping around or negotiating, but many do not.

You cannot pass the cost on with a card surcharge. Regulation 6A of the Consumer Rights (Payment Surcharges) Regulations 2012, in force since 13 January 2018, stops a payee charging a fee for payment by card-based instruments that are not commercial cards. Business cards are treated differently, and rules change, so check the latest position.

02

Why do low-value sales cost more in percentage terms?

A fixed fee on each transaction is a bigger slice of a small sale than a large one. Pubs, cafes and bars take many small payments, so the per-transaction fee can matter as much as the headline percentage.

This is why a quote with a low percentage can cost more than one with a higher percentage and no per-transaction fee, if your average sale is small. Find your average sale by dividing a month's card takings by the number of card payments, both shown on your statement.

03

How do I judge whether my hospitality card rate is fair?

Work out your effective rate: total fees divided by total card takings for one month. Then ask other providers to price that same statement. There is no single fair rate, because your average sale and card mix change the answer.

1. 01
   Pick a typical month

   Avoid an unusually quiet or busy one, and use the full statement.

2. 02
   Add every fee

   Include processing, per-transaction, terminal rental and service charges. Leave out VAT.

3. 03
   Divide by card takingsFull step in the download ↓
4. 04
   Ask for the same month pricedFull step in the download ↓

This guide does not quote a typical rate, because we could not source one. Rates differ with card mix, average sale and pricing model, so your own statement is the only fair comparison.

04

What is the difference between a tip and a service charge?

A tip is a voluntary payment from the customer. A service charge is an amount added to the bill before it is presented. The tipping law covers both, and HMRC treats them differently for VAT.

The statutory code also covers voluntary service charges, where it is made clear that the amount is purely discretionary. A card tip is likely to count as received by the employer, because the employer receives the money.

For VAT, HMRC's catering notice says a service charge you make is standard-rated, but no VAT is due on a tip the customer freely gives above your total charge. Optional service charges have more detailed rules, so check with HMRC or your accountant.

05

What must I do with card tips under UK law?

Pass them to the workers who earned them, with no deductions except limited cases such as income tax. Keep a written tipping policy if tips are regular, pay out by the end of the following month, and keep records for three years.

The policy is needed where qualifying tips are paid more than occasionally. It must be in plain language and say how tips are accepted, allocated and distributed. Tips must be allocated fairly. They are due by the end of the month after customers paid them, so a tip left on 23 June must be paid out by 31 July. The tipping record is kept for three years from the date each tip was paid.

Deductions are allowed only in very limited cases, such as income tax. The code does not mention card processing fees, so take advice before deducting anything for them. HMRC says that when the employer passes on tips paid through its till or card terminal, PAYE applies and employer and employee National Insurance are due. An independent tronc can change the National Insurance position.

06

How should I set up tip prompts on a card machine?

Decide how the prompt appears and how tips are recorded before go-live. Ask where the prompt shows, what amounts it offers, how split bills work, and how tips appear in the reports you use for payroll.

DOJO lists tipping and bill-splitting among its Go Max features. How tips are recorded depends on your EPOS setup. A prompt does not change who owns the tip: the legal duties above apply whatever the screen says.

07

How do I check a card machine will work with my EPOS?

Give your EPOS supplier the software name and version, ask which card machines it supports, then test a real sale, a split bill, a tip, a refund and an end-of-day close. A supported link sends the amount from the till to the machine.

DOJO says it integrates with more than 400 EPOS systems. A supported connection passes the amount so staff do not key it twice. Table management, menus and kitchen tickets remain EPOS features. Do not assume a terminal can take payments offline.

08

How fast should card takings reach my bank, and why does it matter?

Payout timing is set in your provider agreement. Ask whether it counts calendar days or working days, whether weekends and bank holidays are included, and what cut-off time applies. Faster payouts help pay suppliers and wages.

DOJO describes next-day payouts every day, including weekends and bank holidays. Other providers may pay on working days only, which matters for a venue whose biggest takings come on a Friday or Saturday night.

DOJO also describes Flex Funds, offered with Liberis, which lets eligible merchants access some of their card takings before payout. It is repayable funding with fees, so read the offer.

09

What should I ask a provider before I switch?

Ask for the pricing model, what your last statement would have cost, the contract and exit terms, the terminal terms, and the EPOS and payout terms. Get every answer in writing before you sign.

Under the Payment Systems Regulator's 2022 remedies, directed providers must send businesses with card turnover up to £50 million a summary box of key terms and prompt them to shop around. Terminal lease and rental contracts for businesses up to £10 million are limited to an initial term of 18 months, then rolling renewals of no more than 31 calendar days. If your provider is not covered, these rules may not apply, so ask. Check your own contract first: the minimum term, notice period and exit costs shape the timing.

Reeve Consult is an authorised DOJO partner and may receive a referral fee if you go ahead with DOJO. Compare any offer using your own statement. Terms apply, so check the written offer.