Nadhim Zahawi: 5 questions that need answering on tax affairs

Rishi Sunak is under pressure after he resisted firing Nadhim Zahawi, despite the Conservative chairman’s admission he settled a tax dispute after an HMRC investigation.

The prime minister, who has ordered his ethics adviser to investigate whether Mr Zahawi broke ministerial rules, admitted there are “questions that need answering” as the saga rumbles on.

Some Tory MPs want Mr Zahawi to quit, though others have urged him to “get out” more tax details in an attempt to clear the matter up. The Independent takes a closer look at the big unanswered questions.

Why exactly did Mr Zahawi need to settle a tax bill?

The Independent first revealed in July that HMRC was investigating Mr Zahawi’s taxes in relation to an offshore company Balshore Investments, which had held shares in the polling company he co-founded, YouGov.

Mr Zahawi provided previous few details in the summer – but he denied being a beneficiary of Balshore Investments, and disclosed that his father had held the shares.

At its founding, YouGov allocated 42.5 per cent of its shares to Balshore. Mr Zahawi said on Saturday that his father took founder shares “in exchange for some capital and his invaluable guidance” when he was setting up the polling firm.

By 2018, Balshore had sold its shares for an estimated £27m. Mr Zahawi said HMRC agreed his father was entitled to some founder shares “though they disagreed about the exact allocation”.

Despite the endeavours of journalists and tax specialists, it remains unclear why Mr Zahawi paid a hefty tax bill on the shares. It is not clear whether the minister thought he had no claim at all to founder shares, or whether he was judged to have benefited from Balshore’s sale of the shares.

How much has Mr Zahawi paid to settle the tax dispute?

Tax expert Dan Neidle has estimated that Balshore had sold its YouGov shares for an estimated £27m. UK residents have to pay tax any or gains they make from the sale of shares.

Mr Zahawi has not yet disclosed the size of the HMRC settlement – but the Sun on Sunday revealed last week that it was a “seven-figure” sum. And The Guardian reported on estimated £4.8m tax bill, including interest and a 30 per cent penalty of around £1m.

The Tory chairman’s spokesman has not denied the reported sums. While Mr Zahawi has said HMRC found he had made an “error” that was “careless and not deliberate” and he co-operated throughout their inquiries. But tax experts have questioned what exactly the 30 per cent penalty was for.

When exactly did tax issues with HMRC come to his attention?

Mr Zahawi said on Saturday that “questions were being raised about my tax affairs” when he was being appointed chancellor by Boris Johnson on 5 July.

But following The Independent’s story about HMRC inquiries into his taxes on 9 July, Mr Zahawi claimed he did not know about the matter and had paid “all due taxes”. He also told Sky News he knew “nothing of this” and claimed he was being “smeared”.

His Saturday statement also said the matter was “resolved” before he was appointed Cabinet Office minister by Liz Truss in September and later tory chair by Mr Sunak in late October.

So it is unclear when Mr Zahawi first knew the HMRC has issues with his tax affairs, and how he or his representatives began to take steps to resolve the issue in the summer.

Why did he claim to have been ‘smeared’?

Mr Zahawi claimed he was “cleared being smeared” after The Independent story emerged in July. He was running for the Tory leadership at the time.

The senior minister also attempted to stop The Independent exposing that he was being investigated over his tax affairs by threatening to sue if we published.

Lord Evans, the chairman of the Committee on Standards in Public Life, criticised the legal threats Mr Zahawi made. “I don’t think that does live up to the sort of standards that the public would rightly expect,” he said.

What did he tell government officials and prime ministers?

A HMRC “flag” about Mr Zahawi’s tax affairs was first raised by officials at the Cabinet Office’s ethics and propriety team before he was appointed chancellor, The Observer first reported in July.

The issues were said to have been raised with Mr Johnson before he made him chancellor. The BBC reported that Mr Zahawi “flagged the issue” himself with the ethics and propriety watchdog prior to his appointment.

With the £4.8m settlement thought to have been reached while he was chancellor, Ms Truss also appointed Mr Zahawi as her Cabinet Office minister in September without his tax affairs being flagged by officials, according to The Times.

But No 10 has said Mr Sunak was not made aware of any outstanding tax issues when appointed Mr Zahawi to his cabinet at the end of October.

Will the ethics adviser judge that Mr Zahawi should have shared more information with Ms Truss, Mr Sunak and top government officials? Will the investigation reveal problems with ethics and propriety checks?