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Replies to Queries - 3

05 February 2003
Issue: 3893 / Categories:

Replies to Queries - 3

Return(ed) to sender

Our client sent a cheque for his 2000/01 self assessment liability to the Inland Revenue before the due date of 31 January 2002. However, the bank returned the cheque because the word 'pounds' was not written after the amount in words. (Our client informs us that this is accepted practice in his home country of Canada and furthermore his United Kingdom bank has never returned any of his cheques before.)

Replies to Queries - 3

Return(ed) to sender

Our client sent a cheque for his 2000/01 self assessment liability to the Inland Revenue before the due date of 31 January 2002. However, the bank returned the cheque because the word 'pounds' was not written after the amount in words. (Our client informs us that this is accepted practice in his home country of Canada and furthermore his United Kingdom bank has never returned any of his cheques before.)

Neither the bank nor the Revenue informed him of this action and it was only discovered when he checked his bank statement after the end of February, thus putting him into a surcharge position. The Revenue's stance (as confirmed by its literature) is that a cheque made out incorrectly does not constitute a reasonable excuse.

We believe that the cheque was not made out incorrectly and had all of the requirements of a valid bill of exchange, i.e. it was drawn on a sterling bank account and the figures were preceded by a '£' sign. In our opinion the amount constituted a 'sum certain' and the bank was at fault for returning the cheque. Therefore we believe that our client had a reasonable excuse, but so far our argument has fallen on deaf ears.

Readers' comments as to how we can persuade the Revenue are welcomed.

(Query T16,150) - Elvis.

 

As 'Elvis' correctly points out, a cheque is a type of bill of exchange and so covered by the Bills of Exchange Act 1882. Although it is traditional for bills of exchange to state the value both in words and in numbers, strictly only the former is necessary. Furthermore, if there is a discrepancy between the words and the numbers, the words take precedence (section 9(2), Bills of Exchange Act 1882). Nevertheless, a cheque is not invalidated by obvious and intelligible mistakes in the written words. In particular, a bill for 'twenty-five, seventeen shillings and three-pence' was held to be a good bill for £25 17s 3d (Phipps v Tanner (1833) 5 C & P 488). This principle was confirmed by the Court of Appeal in Banca di Roma SpA v Orru [1973] 2 Lloyd's Rep 505.

As the cheque made it clear that sterling was the appropriate currency, it would appear that the cheque drawn by 'Elvis's' client was a valid cheque. On the other hand, the bank may have had a contractual term in its relationship with 'Elvis's' client which required the currency to be explicitly stated. If so, this could have justified its refusal to accept the cheque. However, the fact that there appear to have been previous occasions when the bank accepted cheques without 'pounds' being stated in words suggests that any such term has ceased to be operative.

Provided that the drawer of the cheque has sufficient funds in his account (or a sufficient overdraft facility) when the cheque is presented, the bank should not have rejected it. This principle has remained unchanged for at least 200 years. Subject to there being a specific contractual term requiring the inclusion of the word 'pounds', 'Elvis's' client has provided the Inland Revenue with a valid cheque and would therefore have a reasonable excuse to mitigate any surcharge. The above authorities should be pointed out to the Revenue and the surcharge ought to be removed. Any further refusal to remove this imposition should be dealt with by a polite letter to the Area Director.

Presumably, the client has suffered an interest charge as well due to the late payment. This cannot so easily be remedied by the Revenue (although some Inspectors will remove such a charge). However, 'Elvis's' client has grounds to reclaim this amount (less any additional interest earned) from the bank. - Kalonymous.

 

Just because a financial institution, in this case a bank, does something that it believes to be correct, does not mean to say that it is right! Also the fact that the payee, which is another financial body, did nothing to collect its debt, is according to the Revenue manuals an error on its own part, which I will cover later.

First let me direct my answer to the bank. If 'Elvis's' client had always omitted the word 'pounds' after the amount describing the quantity of whole units of the currency and the bank had never before returned the cheques, then the fault here is with the bank, and a suitable letter should be written to the manager, or these days perhaps the person in charge of customer services, pointing out the failure of the bank to maintain its previous performance. Also a claim for compensation to reimburse the unnecessary need of having incurred, with the Revenue, interest on late paid tax and a five per cent surcharge.

Turning to the Inland Revenue, looking at its manuals it appears that because it has not responded to the client in respect of the returned cheque, then it is at fault. As per the Assessed Taxes Manual at paragraph 8.201: 'Cheques banked by Accounts Office and dishonoured … Where a cheque is returned unpaid because it is incorrectly drawn, for example it is unsigned or the words and figures disagree, Accounts Office will return the cheque to the taxpayer with form C50(Z) …'. This is a form which details the reasons why the cheque has been returned and is followed by various possible corrective courses of action needed. Also the Collection Manual at paragraph 6.303 gives the action needed by the 'Cashiers' Supervisor', and paragraph 6.304 says 'Approach to the taxpayer. Depending on the circumstances of the case, the Cashiers' Supervisor should contact the taxpayer urgently to arrange, as appropriate:

* proper completion of the cheque;

* replacement in cash; or

* for the original cheque to be honoured on representation.

Where you need to write to a taxpayer about a dishonoured cheque, mark the envelope "Private and Personal" - this is particularly important where the address you hold is that of an agent'.

Therefore, regarding the bank's apparent error, the fact that the Revenue has not responded to the client is a fault on its part. However, looking at page 6 of the Revenue's booklet SA/BK7 Self Assessment - Surcharges for late payment of tax, we find under Examples of what we may agree as a reasonable excuse: 'Cheque dishonoured - if the cheque was dishonoured solely because of an error by the bank, we would agree this as a reasonable excuse. However, we would expect you to pay promptly after you learned of the bank's action'. Therefore as long as the client made payment of the outstanding liability immediately after discovering the adverse position on his bank statement, then what I have mentioned regarding the bank error should be passed on to the Revenue, requesting that it cancel the interest on late payment and surcharge, which I imagine were the reasons for 'Elvis' having to make this query. - N.K.

Extract from reply by 'Bear':

A stony faced rejection of excuses is commonplace in dealings with both Customs and Excise and the Inland Revenue, but few cases of appeal hearings are reported except in relation to VAT. Among the latter, the Tribunal not infrequently accepts common sense excuses such as that put forward by 'Elvis'. Excuses accepted include occasions such as in Carton Bashforth Screenprint Ltd (3232) where a cheque was out of date because it was dated 1986 instead of 1988; in Green Cook Ltd (5781) where a cheque was signed by one signatory instead of two; and in C Rees (4440) where a date alteration in manuscript had not been initialled, but the Tribunal followed a dictum in Halsbury's Laws of England and concluded that it was unreasonable of the bank not to have honoured the cheque.

It should not be costly to take this simple case to appeal. Indeed, the mere intention to do so may suffice.

Issue: 3893 / Categories:
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