Nadhim Zahawi: No penalties given for ‘innocent tax errors’, says HMRC chief

Conservative chairman Nadhim Zahawi has not made an “innocent error” in his tax affairs, the head of HM Revenue and Customs (HMRC) has suggested.

Mr Zahawi faces an ethics probe into whether he broke the ministerial code over his £5m tax settlement, after The Independent first revealed he had been subject to a HMRC investigation.

The Tory chairman is understood to have a £1m penalty to settle the dispute – claiming that HMRC had judged his tax “error” to have been “careless and not deliberate”.

James Harra, HMRC’s chief executive, told a cross-party group MPs on Thursday that “there are no penalties for innocent errors in your tax affairs”.

“If you take reasonable care but nevertheless make a mistake, whilst you will be liable for the tax and for interest if paid late, you would not be liable for a penalty,” he told the public accounts select committee.

“But if your error was as a result of carelessness then legislation says a penalty can apply in those circumstances,” the HMRC chief added.

Mr Harra made clear that he was not discussing Mr Zahawi’s case in particular, but was grilled by MPs about the nature of tax disputes and how top politicians are treated by HMRC. He said his organisations “treat all taxpayers the same way”.

But the HMRC boss suggested there could be circumstances where he could discuss details of a minister’s tax affairs before the committee – as he said he would help the No 10 ethics inquiry into Mr Zahawi any way he could “in any way we possibly can”.

Mr Harra was asked what his organisation would do if a prominent politician make a claim about their tax affairs that HMRC knows is “categorically false”.

Labour MP Dame Meg Hillier, committe chair, asked Mr Harra whether HMRC would ever correct such claims. He said such a position could be a matter of “frustration”, but HMRC had a duty of confidentiality.

“As a general rule, our duty of confidentiality would mean that if a taxpayer made a public statement about their affairs which we felt we did not agree with, that would not be a matter that we would correct … But again, we would look at things on a case-by-case basis.”

Rishi Sunak – who has ordered has ethics adviser to investigate Mr Zahawi’s tax settlement – is said to be “livid” with his cabinet minister over the saga.

“Rishi is trying to do the right thing in terms of process but he’s livid,” an ally of Mr Sunak The Times. “He wants to get on with things but this is just a gift to Labour. He [the prime minister] has acted in good faith.

Tory MPs also told The Independent they believe that Mr Sunak was “increasingly irritated” with Mr Zahawi and was preparing to fire him if Sir Laurie Magnus’ probe into the tax saga found any wrongdoing.

Trade minister Andrew Bowie – a close Sunak ally – told BBC Politics Live that if Mr Zahawi is found to have “fallen foul in this report, the prime minister will of course sack him”. A No 10 spokesperson said Mr Bowie had been “giving his opinion”.

One Tory MP said they were “sure” that Mr Sunak would sack Mr Zahawi if he was found to have broken the ministerial code. “He will have to. Otherwise the speech outside No 10 [and vow to bring ‘integrity’] is a busted flush.”

The row surrounding Mr Zahawi centres on a tax bill over the sale of shares in YouGov, the polling firm Mr Zahawi founded, which were held by Balshore Investments, a company registered offshore in Gibraltar and linked to Mr Zahawi’s family.

Mr Zahawi has said that HMRC concluded there had been a “careless and not deliberate” error in the way the founders’ shares, allocated to his father, had been treated. He also insisted he is “confident” he has “acted properly throughout”.

No 10 has said Mr Sunak did not know last week that Mr Zahawi had paid a 30 per cent penalty to HMRC. Mr Sunak also insisted at PMQs that when he gave the Tory chair his cabinet job “no issues were raised with me”.

One source told The Guardian that No 10 was informed of Mr Zahawi’s penalty and tax settlement with HMRC prior to his appointment as Tory chair, but Downing Street has denied that this was the case.

No 10 has not set a timeline or indicated the pace of the inquiry, only saying it hoped ethics adviser Sir Laurie Magnus could report back “swiftly”.

One senior minister suggested the result of the probe could be on Mr Sunak’s desk in as little as 10 days, while The Times reported that the ethics adviser report back within three weeks.

Work and pensions secretary Mel Stride was asked on ITV’s Peston programme about rumours suggesting the investigation could be done within 10 days, and said it “wouldn’t be untypical” for Sir Laurie to operate in that timeframe.