Nadhim Zahawi: full timeline of tax scandal, HMRC investigation, and penalty - plus who knew what when

Nadhim Zahawi has been sacked by Rishi Sunak after a “serious breach of the Ministerial Code”.

It comes after the Prime Minister ordered ethics adviser Sir Laurie Magnus to investigate the Conservative Party chairman, following reports he paid a tax penalty to HMRC as part of an estimated £4.8 million settlement dispute. In a letter to Zahawi, Sunak said “it is clear there has been a serious breach of the Ministerial Code,” and “as a result, I have informed you of my decision to remove you from your position in His Majesty’s Government.”

However, the full story is not so simple - with questions about Zahawi’s tax affairs stretching all the way back to 2020. The MP’s stance on the matter has changed multiple times since then, and there also appears to have been a lot of shifting in terms of who had knowledge of the matter, and at what point. Here is how the scandal unfolded - and what questions still need answering.

2020

The National Crime Agency looks into Zahawi’s finances and passes information to HMRC.

Who knew what?

It is understood that then-Prime Minister Boris Johnson and then-Home Secretary Priti Patel were notified of the NCA action - but were not made aware of any connection with HMRC. No further action was taken by the NCA, and the matter was considered closed.

April 2021

HMRC begins its investigation into Zahawi’s tax affairs. Zahawi was a business minister at the time.

Who knew what?

Zahawi would have been informed of the investigation when it was launched. He and his tax advisers then attended a face-to-face meeting with HMRC. Zahawi later claims he was not aware this was a “serious matter” and was under the impression that he was “merely being asked certain queries”.

Sir Laurie Magnus, who has since investigated Zahawi, says the MP should have understood it was a “serious matter” - and both disclosed it in his ministerial declaration of interests and informed his permanent secretary (the Business Secretary), who, at the time, was Kwasi Kwarteng. Reports suggest Zahawi did neither of these things - and no one else was made aware of the situation.

September 2021

Zahawi is promoted to Education Secretary by Boris Johnson. He does not declare the ongoing investigation by HMRC, despite, in Sir Laurie Magnus’ words, “the ministerial declaration of interests form including specific prompts on tax affairs and HMRC investigations and disputes”.

Who knew what?

It seems that no one else has been made aware of the investigation at this point. So, those ‘in the know’ include: Zahawi, his tax advisers, HMRC.

5 July 2022

Zahawi is promoted to Chancellor of the Exchequer by Boris Johnson. Again, when completing another declaration of interests form, Zahawi does not officially declare that he is under investigation by HMRC.

Who knew what?

However, The Observer later reports that, prior to Zahawi’s appointment as Chancellor, Boris Johnson was alerted by the Cabinet Office’s propriety and ethics team to a “flag” over Zahawi’s tax affairs. It is unclear when the Cabinet Office became aware of this “flag”.

6 July 2022

The Independent breaks the news of the HMRC investigation into Zahawi. The newspaper also reports the National Crime Agency investigation from 2020.

Who knew what?

The matter is now in the public domain. Zahawi is of course aware of the investigation, and Boris Johnson and Priti Patel had previously known about the NCA’s involvement. It is understood that Boris Johnson was also aware of the HMRC investigation.

10 July 2022

The Observer breaks the news that Boris Johnson was aware of a “flag” about Zahawi. Zahawi speaks publicly about the reports - and claims they are “smears”. He denies any knowledge of an investigation, despite the fact that he was first interviewed by HMRC over a year ago, in June 2021. It is only in January 2023 that Zahawi admits to being aware of an investigation.

Who knew what?

The further information is once again in the public domain. But Zahawi has claimed the reports are “smears”, so it is unclear what understanding the Cabinet Office has of the situation.

15 July 2022

Zahawi updates his ministerial declaration of interests to acknowledge that he is under investigation by HMRC. This only emerges in January 2023.

Who knew what?

An MP’s ministerial declaration was at the time seen by the permanent secretary of the relevant department. Now, it is also seen by the ethics adviser Sir Laurie Magnus, but he was not in post until December 2022.

The issue here then is that Zahawi is the permanent secretary in question - since he is a Chancellor. One would think that his superiors would be alerted, such as the Prime Minister. But there is no Prime Minister, as Boris Johnson has resigned from office following a series of separate scandals - and Liz Truss is not appointed until September 2022 after a lengthy Tory leadership race.

August 2022

Zahawi reaches an agreement with HMRC - which includes a tax penalty - while he is still Chancellor. He makes a final settlement in September. Again, he does not declare this despite it being a “relevant interest which could give rise to a conflict”, particularly for a minister in the Treasury, as Sir Laurie Magnus says.

Who knew what?

This is where things become particularly unclear. Zahawi is aware, and HMRC is aware. Other government members have been made aware of rumours about an investigation, but Zahawi does not declare a penalty to anyone. We do not know if the Cabinet Office is up to date on recent developments - or if it informed anyone.

September 2022

New Prime Minister Liz Truss appoints Zahawi to the role of Chancellor of the Duchy of Lancaster. Zahawi does not declare the tax penalty.

Who knew what?

Again, it is unclear. It is possible that Liz Truss was made aware of Zahawi’s previous ministerial declaration about the investigation - but this also could have been lost during her turbulent 44 days in office. Zahawi has still not declared the penalty and Truss’ allies have since said she was not aware of issues with HMRC, so it is difficult to tell who has knowledge of the fine.

October 2022

New Prime Minister Rishi Sunak appoints Zahawi to the roles of Minister Without Portfolio and Conservative Party chairman. Zahawi STILL does not declare his tax penalty.

Who knew what?

Simple answer: we don’t know. Rishi Sunak is being urged to reveal how much he knew about Zahawi at which point - but has insisted “no issues” were raised when he appointed Zahawi to his Cabinet and that the “usual appointments process” was followed.

8 January 2022

The Sun reports that Zahawi agreed to pay several million pounds in tax to settle a dispute with HMRC. It does not say when the settlement was reached. The paper said this was to “settle a dispute”, suggesting the payment had been a tax penalty. A spokesperson for Zahawi says his taxes were “properly declared” and that he “has never had to instruct any lawyers to deal with HMRC on his behalf”.

Who knew what?

This is where things really kick off. There are plenty of questions being asked - and it’s difficult to believe things are not being heavily discussed behind closed doors. A few days later, in PMQs, Rishi Sunak says that Zahawi has “addressed the matter in full”.

16 January 2023

Zahawi tells recently appointed ethics adviser Sir Laurie Magnus that he has updated his party chairman ministerial declaration of interests with the outcome of the investigation by HMRC. Magnus says this should have been done on 25 October, when he was appointed to the role.

Who knew what?

So, Zahawi is still fully in the know - and Sir Laurie Magnus has seen an update to the MP’s ministerial interests. The question being asked is, how much was shared with Rishi Sunak?

20 January 2023

The Guardian confirms that Zahawi’s tax payment was a penalty. Experts estimate the tax due was about £3.7 million - but it is understood that HMRC applied a 30% penalty, bringing the total due to £4.8 million.

A day later, Zahawi acknowledges for the first time that he had reached a settlement with HMRC - despite his repeated declarations that he was not aware he was under investigation. He claims HMRC said that the tax errors were “careless but not deliberate”.

Who knew what?

At this point, everyone should be up to date. The story is all over the news - and surely causing a stir within Number 10. The question is how best to proceed.

23 January 2023

The answer that Rishi Sunak comes to is to order a full investigation into Zahawi’s tax affairs. He says there are “clearly questions that need answering”, and wants Sir Laurie Magnus to fully look into the timeline and assess whether the Ministerial Code was breached.

Who knew what?

We do not know if Zahawi was having conversations with anyone in government behind closed doors. For everyone else, it’s a waiting game for the results of the investigation.

29 January 2023

Sir Laurie Magnus finds seven serious breaches of the Ministerial Code. Rishi Sunak sacks Zahawi as chairman of the Conservative Party. Zahawi releases a letter responding to the news. It contains no apology, and instead criticises the reporting of the scandal by the press.

What questions still need answering?

• If the Cabinet Office raised a “flag” about Zahawi when he was appointed Chancellor, did it raise “flags” when he was subsequently appointed Chancellor of the Duchy of Lancaster and Conservative Party chairman? If not, why?
• How exactly was Zahawi vetted for his roles in Cabinet? 
• When exactly was Rishi Sunak made aware of the investigation, and the tax penalty? 
• What exactly did Zahawi pay to HMRC?