Merchant Fees and Payment Gateways

Every dollar a customer pays by card arrives in your bank account with a bite already taken out of it. Stripe, Square and PayPal make the bite easy to ignore — the deposit appears, the amount looks plausible, and the bank feed offers to call it sales. Accept that suggestion often enough and your books develop two quiet problems at once: income that is understated, and a real cost of doing business that appears nowhere at all.

Merchant fees are rarely huge line by line. Across a year of card-heavy trading they add up to a cost worth seeing, negotiating and planning around — but only if the books record them as what they are.

The net deposit trap

When a customer pays through a gateway, the gateway collects the full amount, deducts its fee, and deposits the remainder — often batching several days of payments together. If the deposit is coded straight to sales, the books show less income than customers actually paid you and no merchant fees anywhere. The profit figure happens to survive, because the understatement and the missing expense cancel out, which is precisely why the error goes unnoticed for years. Everything else is wrong: the sales figure your GST reporting draws on, the turnover any registration decision looks at, and the margin story your reports tell.

Fees are an expense, not a discount

The sale is the full amount the customer paid; the fee is your cost of accepting the payment. Record the gross amount as income and the merchant fee as an expense — do not net one against the other. This keeps your income figures honest, keeps GST on your sales calculated from the price the customer actually paid, and puts the cost of each payment provider on the profit and loss where it can be compared and questioned. Netting is not a harmless shortcut; it is deleting information from your own accounts.

GST on merchant fees — check, do not assume

The GST treatment of payment charges is not uniform. Some charges connected with payment facilities are treated as input taxed financial supplies, with no GST included and nothing to claim, while some providers' merchant service fees do include GST that a registered business may be able to claim with the right documentation. The treatment can differ between providers and even between fee types on one statement, so check each provider's statements and tax invoices, and confirm the treatment with your accountant rather than claiming credits by habit. Claiming GST credits on fees that never included GST is a small error repeated every month — exactly the kind that reviews pick up.

Reconciling when the bank only shows the net

The clean structure is a clearing account per gateway. Gross sales post into the clearing account, fees post out of it as expenses, and the net bank deposit clears the balance. When the clearing account returns to zero, sales, fees and bank all agree; when it does not, the leftover is a specific question — a payout in transit, a refund, a held amount — rather than a vague doubt. The gateway's own settlement or payout report is the source document, and worth downloading monthly.

What we commonly see go wrong

• Deposits coded straight to sales, understating income and hiding fees entirely.
• GST credits claimed on every fee line without checking whether the provider's charges include GST at all.
• A PayPal balance spent directly on expenses — money that never touched the bank and never entered the books.
• Customer refunds pushed through the gateway and netted invisibly against payouts, so sales and refunds are both misstated.
• A gateway clearing account that has drifted for months, quietly absorbing every unexplained difference.

A worked example

As an illustration: an online retailer codes every Stripe deposit to sales. A review compares the platform's gross sales report to the books and finds the books materially lower — not because sales were hidden, but because fees and refunds were netted out before the money ever reached the bank. Rebuilt through a clearing account, gross sales rise, a matching merchant-fee expense appears, and profit barely moves. What changes is everything built on the sales line: the GST labels, the turnover picture, and — for the first time — a visible annual cost of accepting cards that turns out to be worth negotiating.

When to get help

If your sales figure is really a list of gateway deposits, if you are claiming GST credits on fees without ever having checked a provider's tax invoice, or if a clearing or PayPal balance has drifted beyond explanation, it is worth having the payment side of the file rebuilt once and the monthly tie-out made routine. It is a contained fix, and it makes every report after it more trustworthy.

Can I claim GST credits on Stripe, Square or PayPal fees?

It depends on the provider and the fee type. Some payment charges are input taxed financial supplies with no GST in them, while some merchant service fees do include GST that a registered business may be able to claim with proper documentation. Check each provider's statements and tax invoices, and confirm the treatment with your accountant rather than assuming.

Why can't I just record the net deposit as sales?

Because the deposit is what is left after fees, and sometimes refunds, have been taken out. Recording it as sales understates your income, hides a real business cost, and distorts the sales figures your GST reporting and turnover assessments rely on. Record gross sales and fees separately.

What is a clearing account and do I really need one?

It is a holding account that receives gross sales and fees from your gateway reports and is then cleared by the net bank deposits. When it returns to zero, your sales, fees and bank agree. For anything beyond very low card volumes it is the simplest structure that keeps gateway books reconcilable.