Nadhim Zahawi tax affairs: has Rishi Sunak launched investigation, did MP pay penalty, has he been sacked?

Questions had been raised over Nadhim Zahawi’s tax affairs after he reportedly paid millions to HMRC to settle a dispute with the taxman.

Nadhim Zahawi has been sacked as Tory party chairman after paying a penalty to resolve a multimillion-pound tax dispute while he was Chancellor.

In a letter to Zahawi published on Sunday (25 January), Rishi Sunak said it is “clear that there has been a serious breach of the Ministerial Code”. He had previously asked ethics adviser Sir Laurie Magnus to look into Zahawi’s settlement to HM Revenue & Customs (HMRC).

On Twitter, Zahawi has published a letter responding to his sacking. Addressing the Prime Minister, he reflects on his achievements in government and says Sunak will always have his “full support” from the backbenches. He does not specifically mention his tax penalty, and instead criticises the media coverage of the scandal.

The MP has been facing pressure in recent days to quit as questions swirled about his finances, even after he released a statement to “clear up some of the confusion”. Here, he admitted to paying what “was due” - but said this was because HMRC had “disagreed about the exact allocation” of shares in the YouGov polling company he co-founded.

Zahawi also claimed this error was “careless but not deliberate”, adding: “I am confident I acted properly throughout”. He did not disclose the size of the settlement - reported to be an estimated £4.8 million including a 30% penalty - or whether he paid a fine.

Rishi Sunak has said that the “usual appointments process was followed” when Nadhim Zahawi was made a minister, as he faces pressure over the tax scandal. Credit: Kim Mogg

His dismissal comes after the boss of HMRC told MPs there are “no penalties for innocent errors”, as he was quizzed on the furore surrounding Zahawi. He explained: “So if you take reasonable care, but nevertheless make a mistake, whilst you will be liable for the tax and for interest if it’s paid late, you would not be liable for a penalty. But if your error was as a result of carelessness, then legislation says that a penalty could apply in those circumstances.”

Sunak has also been facing pressure over the scandal, and insisted during PMQs that the “usual appointments process was followed” when Zahawi was appointed to his Cabinet. He also argued that “the issues in question took place before I was prime minister” - but that it is “right that we fully investigate this matter and look at all the facts”, as well as “stand up for proper due process.”

The findings of the investigation, presented in a letter to Sunak by Sir Laurie, concluded that Zahawi “has shown insufficient regard for the general principles of the Ministerial Code” and that he has not fulfilled the requirements of being an “honest, open and an exemplary leader”. Sir Laurie also wrote: “Mr Zahawi’s conduct as a minister has fallen below the high standards that, as prime minister, you rightly expect from those who serve in your government”.

Zahawi has been sacked from Sunak’s Cabinet as a result. Labour, the Lib Dems and Conservative Party backbencher Caroline Noakes had all called for him to stand aside.

The news first broke after a report in The Sun stated that the MP had to cough up a seven-figure sum to end a dispute with the taxman following scrutiny of his family’s financial affairs. Questions were subsequently raised about whether he tried to avoid paying tax by using an offshore company, Balshore Investments, (which is thought to be linked to his family), to hold shares in YouGov.

So what exactly happened with Nadhim Zahawi’s taxes, what has been said, and why has he been sacked? Here’s everything we know so far - including a timeline of events.

HMRC is under pressure to reveal whether Nadhim Zahawi paid a penalty to the tax office after reports claimed he handed over millions of pounds to settle a dispute. Credit: Mark Hall / NationalWorld

What has Zahawi said about the tax claims?

Zahawi has released his response to his sacking, in which he said he was proud of his role in the vaccine rollout during the coronavirus pandemic and how the mourning period for Queen Elizabeth II was conducted. He also took aim at the press coverage of his tax scandal, writing: “I am concerned about the conduct from some of the fourth estate in recent weeks”.

Prior to this, in an official statement released on 21 January to “address confusion”, Zahawi said: “As a senior politician I know that scrutiny and propriety are important parts of public life. Twenty-two years ago I co-founded a company called YouGov. I’m incredibly proud of what we achieved. It is an amazing business that has employed thousands of people and provides a world-beating service.

“When we set it up, I didn’t have the money or the expertise to go it alone. So I asked my father to help. In the process, he took founder shares in the business in exchange for some capital and his invaluable guidance. Twenty one years later, when I was being appointed Chancellor of the Exchequer, questions were being raised about my tax affairs. I discussed this with the Cabinet Office at the time.

“Following discussions with HMRC, they agreed that my father was entitled to founder shares in YouGov, though they disagreed about the exact allocation. They concluded that this was a ‘careless and not deliberate’ error. So that I could focus on my life as a public servant, I chose to settle the matter and pay what they said was due, which was the right thing to do.

“Additionally, HMRC agreed with my accountants that I have never set up an offshore structure, including Balshore Investments, and that I am not the 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.”

This was the first official statement released by Zahawi after reports first emerged. Prior to this, his spokesperson made a statement in which he claimed the MP’s taxes were “properly declared” and that Zahawi had “never had to instruct any lawyers to deal with HMRC on his behalf.” He also added that Zahawi “is proud to have built a British business that has become successful around the world.”

Zahawi’s latest comment on his tax affairs concerned the Prime Minister’s decision to launch an investigation. The Tory Party chairman simply said: “I am confident I acted properly throughout.”

Zahawi has so far declined to say whether or not he paid millions of pounds to HMRC. Credit: Getty Images

What is the full timeline of events relating to Zahawi’s tax affairs?

2020: The National Crime Agency looks into Zahawi’s finances and passes information to HMRC. No further action is taken at the time.

5 July 2022: Nadhim Zahawi is appointed Chancellor of the Exchequer in Boris Johnson’s Cabinet, following Rishi Sunak’s resignation from the role.

7 July 2022: Boris Johnson resigns as Prime Minister of the United Kingdom.

9 July 2022: Zahawi joins the Tory leadership race as MPs compete to replace Johnson. His bid sparks controversy however, with The Independent reporting that HMRC is still looking at the MP’s tax affairs after the initial investigation in 2020. Zahawi comments: “I was not aware of this, I have always paid my taxes, I have declared my taxes in the UK."

14 January 2023: The Sun reports that Zahawi had to cough up a seven-figure sum to the taxman after scrutiny of his family’s financial affairs. The paper said this was to “settle a dispute”, suggesting the payment had been a tax penalty. A spokesperson for Zahawi insists his taxes are properly declared and paid in the UK.

The questions which were reportedly raised concerned whether or not he should have paid capital gains tax on his founding share in YouGov, with sources suggesting he avoided this by using an offshore company. Zahawi’s share was held and sold when it was worth around £20 million in 2018, by Gibraltar-based firm Balshore Investments. According to think-tank Tax Policy, Balshore’s sale of YouGov shares should have incurred capital gains tax of around £3.7 million.

18 January 2023: Prime Minister Rishi Sunak is questioned about the scandal during PMQs. He says Zahawi had “already addressed this matter in full” and that there was “nothing more [he] could add”.

21 January 2023: Zahawi releases a statement to “address some of the confusion about [his] finances”. He admits he paid a tax settlement to HM Revenue & Customs, as the department disagreed with the allocation of founder shares his father took when he set up YouGov. He says HMRC viewed this as a “careless but not deliberate mistake”.

23 January 2023: Rishi Sunak asks new ethics adviser Sir Laurie Magnus to investigate Zahawi to assess whether the former chancellor breached the ministerial code with the settlement to HMRC.

26 January 2023: HMRC boss tells MPs there are “no penalties for innocent errors.”

29 January 2023: Rishi Sunak sacks Nadhim Zahawi as Tory party chairman, saying it is “clear that there has been a serious breach of the Ministerial Code”.

Rishi Sunak was questioned about Zahawi’s tax affairs during PMQs. Credit: PA

Has the Prime Minister commented on the scandal?

Rishi Sunak was questioned about Zahawi during PMQs on Wednesday (25 January). He told leader of the opposition, Keir Starmer, that “the issues in question took place before I was prime minister” and that the “usual appointments process was followed” when Zahawi was made Minister Without Portfolio.

He also highlighted that he had asked the independent ethics adviser to “look into the matter”, saying it is “right that we fully investigate this matter and look at all the facts” - and arguing that “what I’m standing up for is proper due process.”

When he first ordered the investigation, the Prime Minister told reporters that “integrity and accountability” were “really important” to him, and “clearly there are questions that need answering.”

Why are there calls for an inquiry?

The Labour Party has called for an inquiry into Zahawi’s tax affairs, arguing that “it is manifestly in the public interest” for the situation to be explained. Both deputy leader Angela Rayner and party chair Anneliese Dodds have written to HMRC.

Rayner said she understood that HMRC generally does not comment on taxpayers, but, “given the public interest in this case as well as the serious questions raised about a potential conflict of interest at the heart of government, the public requires answers.” She added: “In particular, there appears to be an element of special treatment directed towards Nadhim Zahawi by HMRC.”

The MP also called on HMRC to explain the nature of the payment and asked whether Zahawi “has admitted fault or incurred financial penalties as part of his settlement.”

The Labour Party has called for an inquiry into Zahawi’s tax affairs. Credit: Getty Images

Meanwhile, Dodds called the allegations surrounding Zahawi “deeply concerning”, especially in light of his previous promises about his taxes in July. She said: “If he has not been straight with the British people, or with HMRC, he should have no place in the government.

“What is even more concerning is that Rishi Sunak, the man who promised honesty, integrity and accountability on the steps on No 10, was happy to appoint Nadhim Zahawi to his Cabinet. Zahawi needs to come clean about his tax affairs. Sunak needs to come clean about what he knew about this investigation and when.”

The Labour Party Chair also responded to news that Zahawi was Chancellor while negotiating his settlement, saying: “After a week of Nadhim Zahawi dodging questions, we now know the shocking truth that he was negotiating his tax settlement while in charge of HMRC. This whole episode is deeply damaging to public trust, with a Chancellor in charge of the nation’s finances asking the public to pay their taxes while apparently having failed to do so himself.”

She went on to argue he should be fired, stating: “His position is clearly untenable. Every hour that Rishi Sunak refuses to sack him shows just how weak the Prime Minister is.”

Why was Zahawi sacked from Sunak’s Cabinet?

Zahawi was sacked for breaking the Ministerial Code, with Sir Laurie determining that his conduct had Sir Laurie said “fallen below the high standards that, as prime minister, [Sunak] rightly expect[s] from those who serve in government”. When Sunak first ordered the investigation, he specifically asked Sir Laurie to assess whether Zahawi’s HMRC settlement amounted to a breach of the ministerial code.

There has been no more information offered about the nature of the settlement at present.