Introduction

Mariner v. Revenue & Customs ([2013] UKFTT 657 (TC)) is a pivotal case adjudicated by the First-tier Tribunal (Tax) on October 25, 2013. The appellant, Mrs. Elizabeth Mariner, sought to overturn a penalty imposed by Her Majesty's Revenue and Customs (HMRC) for a perceived careless or negligent error in her income tax return for the fiscal year ending April 5, 2011. The core issue revolved around the correct offsetting of a rental income loss against other income, a matter entrusted to her professional tax adviser, Faith in Finance Ltd, represented by Mr. Embleton.

Summary of the Judgment

Mrs. Mariner filed her tax return through Faith in Finance Ltd, claiming a rental income loss offset against other income. HMRC identified this as an incorrect offset and imposed a penalty of £434.94, alleging carelessness or negligence. Despite appealing this decision during a review, the penalty was upheld, prompting Mrs. Mariner to escalate the matter to the Tribunal.

The Tribunal meticulously examined whether Mrs. Mariner exhibited carelessness in her tax affairs or if she possessed a reasonable excuse due to her reliance on professional advice. Citing previous cases and evaluating the nature of the professional relationship between the taxpayer and her advisor, the Tribunal concluded that Mrs. Mariner had not been careless. Instead, her reliance on a professional adviser, who was not acting as a mere functionary but as a qualified tax consultant, provided her with a reasonable excuse. Consequently, the penalty was set aside, and the appeal was allowed.

Analysis

Precedents Cited

Two significant precedents were instrumental in shaping the Tribunal's decision:

• Wald v HMRC [2011] UKFTT 183 (TC): This case highlighted that taxpayers remain responsible for errors in their tax returns arising from their accountants' negligence. However, it distinguished between mere administrative errors and substantive professional advice.
• AB v HMRC [2007] STC (SCD) 99: This case emphasized that negligence requires more than being wrong; it involves a failure to take reasonable care. It recognized that proper reliance on professional advice, when sought and acted upon in good faith, negates negligence.

In Mariner, the Tribunal reconciled these precedents by delineating the nature of the professional relationship. The key takeaway was that while administrative negligence by an accountant might not shield a taxpayer from penalties, substantive professional advice that is properly relied upon does provide a defense against negligence claims.

Legal Reasoning

The Tribunal's reasoning hinged on distinguishing between an accountant acting as a mere agent or functionary and one acting as a professional adviser:

• Functionary Role: When an accountant performs administrative tasks without offering substantive advice, any negligence in these tasks could be directly attributable to the taxpayer, leading to potential penalties.
• Professional Adviser Role: Conversely, when an accountant provides professional advice, demonstrating expertise and guiding the taxpayer on complex matters, the taxpayer's reliance on such advice can be considered reasonable. If the advice is subsequently found to be negligent, the taxpayer is not held liable for penalties, provided they had no knowledge of the advisor's potential errors.

In this case, Mrs. Mariner had no awareness of any disputes or disagreements between her adviser and HMRC regarding previous tax returns. Her reliance was based on the adviser's professional capacity and expertise. The Tribunal emphasized that unless the taxpayer has reason to doubt the adviser's competence, reliance on professional advice constitutes a reasonable excuse, absolving the taxpayer from negligence.

Impact

This judgment has significant implications for taxpayers and tax professionals alike:

• Taxpayers: Reinforces the protection afforded to individuals who genuinely rely on professional tax advisers, provided there is no indication of underlying disputes or errors that the taxpayer is aware of.
• Tax Advisers: Emphasizes the responsibility of professional advisers to not only provide accurate advice but also to communicate effectively with their clients about any disputes or uncertainties with tax authorities.
• HMRC: Signals a need for diligence in assessing penalties, especially in cases where taxpayers have demonstrably relied on professional advice without being complicit in any negligence.

Future cases will reference Mariner v. Revenue & Customs when addressing issues of taxpayer negligence, professional responsibility, and the limits of liability in the context of delegated tax preparation and advice.

Complex Concepts Simplified

Reasonable Excuse

A "reasonable excuse" in tax law refers to a valid and justifiable reason for failing to comply with tax obligations, which exempts the taxpayer from penalties. In this case, Mrs. Mariner's reasonable excuse was her reliance on professional advice from a qualified tax adviser.

Negligence

Negligence in the context of tax returns involves a failure to take the necessary care to ensure that all information provided is accurate and compliant with tax laws. It goes beyond mere error to include a lack of reasonable care that a prudent person would exercise in similar circumstances.

Functionary vs. Professional Adviser

- Functionary: An individual who performs tasks or services without providing substantive advice or expertise. Their role is limited to executing specific duties.

- Professional Adviser: An individual who offers expert guidance, advice, and strategic input in their area of specialization. They hold a fiduciary duty to act in the best interests of their clients.

Conclusion

The judgment in Mariner v. Revenue & Customs underscores the paramount importance of the professional taxpayer-adviser relationship. It clarifies that when taxpayers engage qualified professionals for tax advice and rely on that guidance in good faith, they are entitled to protections against penalties arising from inadvertent errors. This decision reinforces the necessity for tax advisers to uphold their duty of care and for taxpayers to maintain trust in their professional advisors, provided there is no evidence of underlying negligence or disputes.

Ultimately, this case sets a critical precedent that balances the responsibilities between taxpayers and their advisers, ensuring that expertise is respected and that individuals are not unduly penalized for errors beyond their control when proper professional guidance is sought and followed.