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Why Are Nadhim Zahawi’s Tax Affairs Being Investigated?

Why Are Nadhim Zahawi’s Tax Affairs Being Investigated?

Rishi Sunak has ordered an investigation into Nadhim Zahawi's tax affairs. (Alamy)

4 min read

The Prime Minister has requested an independent investigation into Nadhim Zahawi’s tax affairs after questions were raised over what the Conservative Party chairman had to pay and when.

Zahawi, who was appointed as Chancellor of the Exchequer by Boris Johnson in July last year, and has since been moved to the position of Conservative Party chair, is cooperating fully with the investigation announced by Rishi Sunak on Monday.

There have been calls for Zahawi to resign while the independent investigation into his tax affairs is ongoing, including from with Labour leader Keir Starmer who said the Prime Minister should show “leadership” by removing him from his post.

It was announced at the weekend that Zahawi had reached a settlement with HMRC over the dispute, which has been described as a “careless and not deliberate” error.

Why is Nadhim Zahawi being investigated?

Concerns over Zahawi’s tax affairs relate back to his time before he was an MP, when he co-founded the polling firm YouGov in 2000.

It has been claimed that while his co-founder at the company Stephan Shakespeare was issued 42.5 per cent of its shares, Zahawi himself did not take any.

A similar proportion of shares, however, was allocated to Balshore Investments Ltd, based in Gibraltar, which was controlled by Zahawi’s parents.

Zahawi has since claimed that these shares were allocated to his father in recognition of support he offered when YouGov was being set up, which he said amounted to “some capital and his invaluable guidance”.

These shares were sold by Balshore between 2006 and 2018 for approximately £27m. 

Questions were raised, however, about whether Zahawi himself directly benefitted from the sale of these shares and, if he had, whether he’d paid the appropriate tax.

The Observer reported in July last year that officials had alerted then-Prime Minister Boris Johnson to an HMRC “flag” relating to Zahawi’s tax affairs prior to his appointment as Chancellor.

A source close to Zahawi said at the time that he “does not have, and never has had, an interest in Balshore Investments and he is not a beneficiary”.

What has Nadhim Zahawi said about his tax affairs?

In a statement on Saturday, Zahawi said that HMRC had disagreed over the “exact allocation” of shares in YouGov his father was entitled to, and had concluded that the situation was a “careless and not deliberate” error on Zahawi’s part.

He went on to say that he had chosen to “settle the matter and pay what they said was due” so that he could “focus on my life as a public servant”.

Zahawi said that HMRC had concluded that he had “never set up an offshore structure” in order to avoid tax, and that he was not a beneficiary of Balshore Investments.

“This matter was resolved prior to my appointments as Chancellor of the Duchy of Lancaster and subsequently chairman of the party I love so much. When I was appointed by the Prime Minister, all my tax affairs were up to date,” Zahawi said.

It was reported by the Sun on Sunday a week prior to his statement that Zahawi had agreed to pay “several million in tax” in order to resolve the dispute, while The Guardian puts the figure at around £4.8m.

It is understood that this figure included the tax owed on the sale of YouGov shares, as well as an additional penalty of 30 per cent.

What has been the response to Zahawi’s claims?

Sunak has asked the government's independent ethics adviser to launch an investigation into Zahawi's tax affairs. He told reporters on Monday that “integrity and accountability is really important to me and clearly in this case there are questions that need answering”. 

He confirmed that he had asked Sir Laurie Magnus, who was appointed as the Prime Minister's Independent Adviser on Ministers', to investigate the matter in order to “get to the bottom of everything” and decide whether Zahawi broke the ministerial code.

"I'm pleased that Nadhim Zahawi has agreed with that approach and has agreed to fully cooperate with that investigation,” Sunak added.

Sunak has said that he has full confidence in Zahawi, who remains in the Cabinet. 

Both Labour and the Liberal Democrats have called for Zahawi to be removed from his post as Conservative Party chairman in light of the investigation.

"The very idea that he can be discussing and negotiating his own tax affairs with the body he is supposed to be running – everyone knows it wrong,” Labour leader Keir Starmer said.

“Clearly he isn't going to resign, so the Prime Minister needs to show some leadership. This is a test of the Prime Minister."

Liberal Democrat deputy leader Daisy Cooper said the probe had put Sunak's judgement in the "spotlight".

She added: "If Sunak won’t do the decent thing and sack Zahawi, the least he can do is suspend him for the duration of the investigation.

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