Nadhim Zahawi fights for his political life after admitting tax ‘error’

Nadhim Zahawi was battling to save his political career on Saturday night after he finally admitted reaching a tax settlement with HM Revenue and Customs (HMRC) following an “error” over a controversial multimillion-pound shareholding in the polling company YouGov.

In a carefully worded statement, Zahawi appeared to confirm that HMRC had carried out an investigation into his financial affairs while he was serving as chancellor last summer. Zahawi, now the Tory party chairman, said that the tax authority had concluded that he had made a “careless but 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,” he stated. Tax experts said the statement was a tacit acknowledgment that Zahawi had paid a penalty.

The admission raises questions for Rishi Sunak over what he knew about the settlement and when. It comes with the prime minister already under pressure after being fined for not wearing a seatbelt, with MPs also unhappy over his rejection of tax cuts and the government’s allocation of levelling up funds. In an attempt to protect Sunak, Zahawi added: “When I was appointed by the prime minister, all my tax affairs were up to date.”

Zahawi’s tax affairs were thrown into the spotlight last summer when he was appointed chancellor by Boris Johnson, the day before Johnson was forced to resign. The Observer reported that civil servants in the Cabinet Office’s propriety and ethics team had alerted Johnson to an HMRC “flag” over Zahawi before his appointment, but it had been ignored.

Zahawi faced scrutiny on a tranche of shares in YouGov, the polling company he co-founded, which were held by a Gibraltar company, Balshore Investments, and sold for about £27m between 2006 and 2018. It was estimated by the thinktank Tax Policy Associates he may have avoided £3.7m capital gains tax on the sale of these shares.

Saturday’s statement immediately set off new demands for Britain’s most senior civil servant and parliament’s standards commissioner to launch separate investigations into the affair, after questions over whether Zahawi has made the correct declarations to officials and parliament concerning his financial interests.

Zahawi has still not disclosed the size of the HMRC settlement or confirmed he paid a penalty. It follows a Guardian report that he paid about £5m in relation to the sale of shares in YouGov.

Unlike his YouGov co-founder, Stephan Shakespeare, Zahawi took no shares in YouGov. However, a 42.5% shareholding was held by Balshore Investments, an offshore trust controlled by Zahawi’s parents. As YouGov grew in value, Balshore sold all the shares by 2018.

Zahawi said his father took shares “in exchange for some capital and his invaluable guidance”. He added that while HMRC agreed that his father was entitled to shares, it “disagreed about the exact allocation. They concluded that this was a ‘careless and not deliberate’ error.”

Zahawi said HMRC had agreed he had never set up an offshore structure, including Balshore Investments, and that “I am not the beneficiary of Balshore Investments”. When asked on Saturday night, his team would not comment on whether he had ever benefited from Balshore Investments in the past.

Dan Neidle, a tax lawyer and founder of Tax Policy Associates, said: “When I first reported this, he denied it, threatened to sue me and said throughout his tax affairs were in order. It is a disgrace.”

Opposition parties are now demanding the publication of all of Zahawi’s correspondence with HMRC. They are also calling for independent investigations into whether Zahawi made the necessary declarations to officials and parliament.

Simon Case, the cabinet secretary, is facing calls to oversee an investigation into whether Zahawi should have declared any links relating to YouGov or Balshore under the ministerial code. The Liberal Democrats’ deputy leader, Daisy Cooper, has written to Case, calling for his intervention.

Cooper said: “Zahawi and his Conservative cabinet colleagues are arrogantly trying to brush this under the carpet. There are facts that still need to be established so there must be an independent investigation to get to the bottom of this. The British public has lost all faith in Conservative ministers to tell the truth after years of scandal.”

Meanwhile, Labour has also written to Daniel Greenberg, the new parliamentary commissioner for standards, asking whether Zahawi should have declared Balshore Investments in the public register of members’ interests.

Anneliese Dodds, the Labour chair, said Zahawi’s new remarks raised more questions. “This carefully worded statement blows a hole in Nadhim Zahawi’s previous accounts of this murky affair,” she said. “He must now publish all correspondence with HMRC so we can get the full picture. In the middle of the biggest cost of living crisis in a generation, the public will rightly be astonished that anyone could claim that failing to pay millions of pounds worth of tax is a simple matter of ‘carelessness’.”

She added: “Nadhim Zahawi still needs to explain when he became aware of the investigation, and if he was chancellor and in charge of our tax system at the time.”

Several senior ministers have defended Zahawi, including the prime minister. At prime minister’s questions on Wednesday, Sunak said Zahawi had “already addressed this matter in full and there’s nothing more that I can add”.