Nadhim Zahawi ‘agreed on penalty’ to settle tax bill worth millions

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The Conservative party chair, Nadhim Zahawi, agreed to pay a penalty to HMRC as part of a seven-figure settlement over his tax affairs, the Guardian has been told.

The former chancellor, who still attends the cabinet, has been subject to extensive questions in parliament and the media in recent days after it emerged he agreed to pay millions to HMRC in December after a settlement with the tax agency.

The Guardian has now been told that the former chancellor paid a penalty imposed by HMRC – part of an estimated £5m tax bill.

Penalties are applied if someone does not pay the correct tax at the right time.

Asked repeatedly about the penalty, Zahawi’s spokesperson did not deny one had been paid. Nor did they offer any explanation or clarification about the sums involved.

In reference to the total amount paid to HMRC, the spokesperson said: “Nadhim Zahawi does not recognise this amount … As he has previously stated, his taxes are properly declared and paid in the UK.”

If Zahawi has paid a penalty, it would be hugely embarrassing,given his previous role as chancellor in charge of the UK’s tax system.

He has also been a member of a government that has made great efforts to ensure tax is paid in full and on time.

Labour said Zahawi should quit because his story “doesn’t add up”.

Earlier this week, the party called for an inquiry into whether Zahawi broke the ministerial code or misled the public over his tax affairs.

A source familiar with the payment told the Guardian a penalty was triggered as a result of a non-payment of capital gains tax due after the sale of shares in YouGov, the polling company Zahawi co-founded. He could have been subject to larger penalties had he not reached a settlement towards the end of last year, they claim.

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Experts estimate the tax due was about £3.7m based on the capital gains tax incurred by the sale of multiple tranches of shares in YouGov worth more than £20m, which led to transfers of money to Zahawi.

It is understood HMRC applied a 30% penalty to the £3.7m, bringing the total due to £4.8m. Combined with interest charges that HMRC also applies to taxes owed, this is believed to have taken the final settlement to more than £5m.

Last summer, news reports emerged about Zahawi’s financial affairs, including an HMRC look at his taxes. At the time, Zahawi described such reports as “smears”.

It is understood that after those reports a representative for Zahawi approached HMRC to discuss his tax position.

Michael Gove defended Zahawi on BBC Radio 4 on Thursday, saying: “My firm understanding is HMRC have no quibble with Nadhim. He’s paid everything that he should, and, people paying their taxes, that’s not a story – people not paying their taxes, yeah that is a problem.”

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One of the people with direct knowledge of the cabinet minister’s affairs claimed Zahawi had “complex financial arrangements”.

Angela Rayner MP, Labour’s deputy leader, said: “Nadhim Zahawi’s story doesn’t add up. The position of the man who was until recently in charge of the UK’s tax system and who this prime minister appointed Conservative party chair is now untenable.

“It’s time for Rishi Sunak to put his money where his mouth is and dismiss Nadhim Zahawi from his cabinet.”

The YouGov shares were held through Balshore Investments, a Gibraltar-registered family trust, from which Zahawi has previously denied benefiting. YouGov has described Balshore Investments as “a family trust of Nadhim Zahawi”. The former chancellor has insisted “he does not have, and never has had, an interest in Balshore Investments and he is not a beneficiary”.

Zahawi founded YouGov in 2000, and Balshore had sold its stake in the business by 2018.

HMRC is ordinarily focused on the past four years of someone’s tax returns. It can charge further penalties and back payments, but this is limited to specific circumstances. It is not clear how far in time HMRC went in determining the settlement which, it is claimed, it reached with Zahawi.

As is the case with other wealthy people, Zahawi’s representative was given a fast-track route with a direct case manager within HMRC. This manager is understood to work with HMRC’s Wealthy Team, a specialist unit.

Very wealthy people and their agents’ experience of dealing with HMRC is markedly different from that of ordinary taxpayers or accountants, who often face long delays via understaffed helplines. Mail backlogs have also hampered people’s efforts to resolve tax disputes or clarify whether they ought to file a self-assessment return.

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HMRC defines wealthy people as having incomes of £200,000 or more, or assets equal to, or above, £2m, and states that it is important to work with such people to ensure they pay the right amount of tax.

An HMRC spokesperson said: “We cannot comment on identifiable taxpayers.”

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