Taxes and stamp duty

In 1782 the first Act to impose a tax on all cheques made out to “order” was passed. Cheques payable to “bearer” were exempt as they were deemed to be payable on demand, rather than at a future date (implied by “or order”) and fell within existing legislation relating to Bills of Exchange. Items drawn on certain accounts such as Government departments, the Army and the Navy were also exempt. The first tax was an “ad valorem” (depending on value) stamp duty, which hampered the widespread use of cheques and led to them only being used by the wealthy.

Until 1853, cheques were illegal if dated or negotiated more than 10 miles from the bank on which they were drawn, but in that year an Act was passed legalising such cheques if they bore an impressed or adhesive penny postage stamp. The reduction in duty to one penny made it far more attractive for small businesses to use cheques. By 1856 the 1d (one penny) duty was often ‘forgotten’ and it was common for cheques to be made payable to bearer specifically to avoid the duty.

In 1858 all restrictions regarding distance were removed and a fixed duty of 1d per cheque was imposed on all cheques drawn by private individuals. After 1881 adhesive stamps inscribed “postage & revenue” could be used to show the duty had been paid.

In 1918 stamp duty on cheques was doubled to 2d and by 1929 the Government was earning about £3.5 million a year from this tax. The payment of stamp duty was indicated by means of an impressed stamp, until an amendment to the Act in 1956 which allowed banks to issue chequebooks with the stamp duty mark already in place. The duty was abolished on 1 February 1971, shortly before decimalisation on 15 February 1971.

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