Is there VAT on bank charges?
Standard costs for a current account and payment transactions are generally exempt from VAT. You therefore cannot recover input VAT from those costs. The exemption does not apply to every service related to payments. Check individual equipment, additional direct debit services, and factoring on the invoice. The Tax authorities outline the exemption for payment transactions.
Are bank charges deductible?
Bank charges are deductible from your profit to the extent that you incur them for your business. The label “business account” does not automatically make private use business-related. In the case of mixed use, substantiate which part belongs to your company. A separate business account can help to distinguish between payments and expenses. A deduction lowers your profit; it is not a reimbursement of the full amount.
Booking bank charges in your accounts
Post exempt account fees to bank charges or an appropriate cost category, without reclaiming VAT. Post the costs to the year to which they relate; the payment date is not always decisive, for example in the case of prepayments. Check your statements and invoices so that you do not miss costs or book them twice.
Fictional example: €12 account fees without VAT and €24.20 card terminal rental, of which €4.20 is VAT. With full business use for taxed turnover and a valid invoice, you record €32 in expenses, €4.20 input tax and a payment of €36.20. In the case of private use, exempt turnover or participation in the KOR, you assess the deduction separately. Also read the explanation about input VAT.
VAT exemption for payment transactions explained
The exemption relates to financial services, such as transfers and the management of payment accounts. A separate service or rental of equipment does not automatically fall under this. For instance, when renting a card reader, VAT may appear on the invoice. You only deduct this VAT to the extent that you use the equipment for taxed turnover and meet the deduction conditions. Non-deductible VAT can be part of the business expenses. See also the general rules for business expense deduction.
