Nadhim Zahawi has agreed to pay millions of pounds in tax to HMRC following a dispute over his family’s financial affairs
The former chancellor has agreed to pay a seven-figure sum to the tax authority to settle a tax dispute totalling £3.7m related to his family trust, Balshore Investments.
In July, HMRC examined the tax affairs of MP Nadhim Zahawi after an inquiry was launched by the National Crime Agency (NCA) in 2020.
The Serious Fraud Office (SFO) had also investigated Zahawi’s finances, according to a report in the Independent.
The investigation probed Zahawi’s involvement in a scheme to avoid tax by using an offshore company to hold shares in YouGov – the polling company he co-founded.
His family trust, Gibraltar-registered Balshore Investments, held a stake worth more than £20m, but sold up in 2018, with the proceeds being transferred to an unknown recipient.
Tax Policy Associates, a think tank, has estimated that Balshore’s sale of YouGov shares should have incurred capital gains tax (CGT) of about £3.7m.
Zahawi has insisted that he ‘does not have, and never has had’ an interest in Balshore Investments and that he was ‘not a beneficiary’.
A spokesperson for Zahawi said: ‘As he has previously stated, Mr Zahawi’s taxes are properly declared and paid in the UK. He is proud to have built a British business that has become successful around the world.’
Contesting the news, Zahawi stated: ‘There have been news stories over the last few days which are inaccurate, unfair and are clearly smears. It’s very sad that such smears should be circulated and sadder still that they have been published.
‘These smears have falsely claimed that the Serious Fraud Office (SFO), the National Crime Agency (NCA), and HMRC are looking into me. Let me be absolutely clear. I am not aware of this. I have not been told that this is the case.
‘I’ve always declared my financial interests and paid my taxes in the UK. If there are questions, of course, I will answer any questions HMRC has of me.’
Labour chair Anneliese Dodds has said there were ‘serious questions’ for Zahawi to answer, saying: ‘Why did Nadhim Zahawi claim last summer that he had paid his taxes in full, and that he wasn’t aware of an investigation? When was he made aware of an investigation? Was the prime minister aware of an investigation when he appointed Nadhim Zahawi to the cabinet?’
HMRC launched 278 civil investigations into suspected tax evasion during the first 10 months of the Covid-19 pandemic.
The 278 civil investigations, which were opened between 1 April 2020 and 31 January 2021, were otherwise known as Code of Practice 9 enquiries (COP9).
These are opened into the affairs of taxpayers who are suspected of committing serious tax fraud. This includes deliberately paying less tax than is due, overclaiming tax reliefs or misclaiming government grants.
Under a COP9 enquiry, HMRC has the right to seek recovery of tax, interest and penalties for as far back as 20 years. Despite these far-reaching investigatory powers, many will see this as a far preferable alternative to a criminal investigation.
Taxpayers will be required to provide details of the amount of tax they have evaded which saves HMRC from using its resources to investigate such matters. HMRC sees Cop9 enquiries as a much quicker and less costly process than having to enter criminal proceedings.
It is expected that HMRC may use the COP9 tool to encourage more suspected furlough fraudsters to come forward. ‘HMRC is throwing taxpayers a lifeline by issuing these COP9 enquiries. It’s an opportunity for those who know that there are serious misgivings within their tax affairs to bring this to light and avoid the possibility of a substantial prison sentence.
‘HMRC’s offer of a COP9 deal doesn’t last forever, so tax evaders who receive an offer shouldn’t ignore it. If they do spurn the approach from HMRC then they could find themselves facing a full-blown criminal prosecution.’
Dependent on the severity of the tax evasion that has been engaged in, the financial penalties imposed under the COP9 investigations can be up to 200% of the tax HRMC believes is owed.
If the individual chooses to fully cooperate with the investigation they will receive immunity from criminal prosecution. Taxpayers can also avoid the possibility of prison by requesting to make a disclosure and voluntary entering into a COP9 agreement with HMRC. This is known as a contractual disclosure facility (CDF). ‘Given the severity of the financial penalties under COP9 enquiries, including the possibility of being publicly named and shamed, they are most definitely not an amnesty nor an easy route out.
‘However, taxpayers who have deliberately misrepresented their affairs are likely to have a more favourable outcome if they fully cooperate with HMRC and own up to committing tax fraud.’