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HMRC internal manual

VAT Civil Penalties

HM Revenue & Customs
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Default Surcharge: Discretion, reasonable excuse and mitigation: Error on cheque

The following cases highlight two common errors regarding cheques.

In the case of Covercraft Ltd, MAN/88/791, a company submitted a cheque on which theamounts in words and figures differed. Tribunal Chairman Mr F C Shepherd quoted fromvolume 1 of “the Law and Practice of Banking

“There is no provision in the Bills of Exchanges Act, 1882,which requires the amount to be stated both in words and figures, but in practice thecheque forms issued by the banks always contain spaces for words and figures. The Actcontemplates the possibility of a discrepancy between the words and figures, and itspecifically provides that where there is a discrepancy, the sum denoted by the words isthe amount payable. In practice, bankers usually return such cheques unpaid with theanswer “words and figures differ.”

The company had entered the correct amount in words and the Tribunalupheld their appeal, holding that the bank should not have returned the cheque unpaid butshould have accepted it on the basis of the amount shown in words.”

In the case of Linknet Communications Ltd, the company omitted to sign the cheque.Tribunal Chairman Mr F L de May stated

“It is evident that the Appellant’s mistake was whollyinnocent and the delay in payment can only be described as accidental. However, the factremains that the payment was not made when due, and the reason for this was attributableto the Appellant. I do not regard the Appellant’s error to be a reasonableexcuse.”

You should consider two critical questions in such cases.

  • Was the cheque rejected by the bank or returned by VCU for correction?
  • Did the trader have sufficient funds in his account to pay the tax due at due date?