Stamp duty on cheques is a potentially confusing subject to the modern reader as we have not had stamp duty on cheques since its abolition in 1971 and in any case it was often confusing to the bankers and account holders who were using the cheques when it was in force. The legislation on stamp duty needs to be examined so we only give a brief account of what appears to be the position!
The first Stamp Act (1782) imposed stamp duty on negotiable instruments, which includes promissory notes, bills of exchange and, by inference, cheques though the legislation was not clear on this. The 1783 Act repealed the 1782 Act and a special exemption to stamp duty was provided for those cheques where the banker’s address was within 10 miles of the place of abode of the drawer. At the time, most drawers would have lived within 10 miles of their bank so many, if not most, cheques would not have been liable to stamp duty.
In the 1791 Act, 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 provided the banker carried on business within 10 miles of the place where the cheque was actually drawn (rather than the drawer’s place of adobe but one might ask how anyone would know) and provided the cheque carried the date on or before the day on which it was issued (again, how would anyone know?).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. There was a further Act in 1804 and one in 1828, which increased the 10 mile limit to 15 miles for bearer cheques to be exempt.
The 1853 Act did away with ad valorem duty and a standard 1d stamp duty was introduced but still differently to order cheques and bearer cheques (with the same provisions for exemption). 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, as indicated by the wording along the bottom of the North of Scotland Banking Company cheque on the opposite page.
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. In 1866 a clear oval “one penny” duty stamp was introduced, the first duty stamp that was specifically intended for use in cheques. After 1881 adhesive stamps inscribed “postage & revenue” could be used to show the duty had been paid. In the Finance Act of 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 1st February 1971 by the terms of the Finance Act 1971, shortly before decimalisation on 15th February 1971.
We are indebted to Roger Outing and his excellent catalogue entitled “Stamp Duty on Cheques” and privately published in 2013, which contains an extensive description of the legal framework on this matter.