Nadhim Zahawi’s tax affairs: What did the Conservative Party chairman do?

The chairman of the Conservative Party, Nadhim Zahawi, is currently under investigation over his multimillion-pound tax dispute.

On Monday, Prime Minister Rishi Sunak asked new ethics adviser Sir Laurie Magnus to assess whether the cabinet minister breached the ministerial code with the HMRC settlement he made while he was chancellor.

“Clearly in this case there are questions that need answering,” he told reporters.

Mr Zahawi has said he is “clearly being smeared” over questions about his tax affairs – and that he did not “benefit” from an “offshore trust”.

Mr Sunak is under increasing pressure to remove Mr Zahawi from his senior cabinet post.

But what do we know about the matter so far?

Who is Nadhim Zahawi?

Mr Zahawi, the chairman of the Conservative Party, was previously an aide to Conservative peer Lord Archer and – with another aide Stephan Shakespeare – founded polling company YouGov at the turn of the millennium.

In 2010, setting his sights firmly back on politics, he became MP for Stratford-upon-Avon.

He secured his first junior minister post – education minister – in 2018, but became a household name after COVID broke out in the UK and he was appointed by former PM Boris Johnson as vaccine minister.

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The performance propelled him to cabinet and in September 2021, he took his first secretary of state post, back in the Department for Education.

He was propelled further to chancellor in the dying days of Mr Johnson’s premiership after the resignation of Rishi Sunak.

Mr Zahawi made an unsuccessful bid to become PM following Mr Johnson’s removal – losing out to Liz Truss – but was appointed Chancellor of the Duchy of Lancaster.

He became chairman of the Tory Party just weeks later when Ms Truss’s premiership came crashing down and Mr Sunak gained the keys to Number 10.

What is the controversy about?

In January 2023, The Sun On Sunday published a report claiming Mr Zahawi had paid a seven-figure sum to settle a dispute with HMRC over the sales of his YouGov shares.

The shares, worth an estimated £27m, were held by Balshore Investments, a company registered offshore in Gibraltar linked to Mr Zahawi’s family.

Sky News understands that, as part of a settlement with HMRC, Mr Zahawi paid a penalty to the tax collector.

The exact size of the settlement has not been disclosed, but it is reported to be an estimated £4.8m, including a 30% penalty.

By Monday, Mr Sunak had ordered a potentially far-reaching investigation into Mr Zahawi to be conducted by the PM’s new ethics adviser Sir Laurie Magnus.

Sir Laurie is expected to focus on whether the cabinet minister breached the ministerial code with the estimated £4.8m HMRC settlement he made while he was chancellor, but it could extend to his prior tax arrangement and whether he lied to the media.

It is unclear what the prime minister knew about Mr Zahawi’s dealings with the tax office when he appointed him to his cabinet in October.

Sources close to Mr Zahawi have said he is “absolutely not standing down”.

What has Zahawi said?

Last July, it was reported that HMRC was investigating Mr Zahawi’s tax affairs – but a spokesperson for him at the time said he was “not aware of any formal investigation by HMRC” and insisted “his taxes are fully paid and up to date”.

The next day, allegations arose that concerns had been raised by officials over Mr Zahawi’s tax affairs before his appointment as a minister in Mr Johnson’s cabinet.

When the issue of his tax affairs came up in an interview with Sky News as Mr Zahawi prepared to launch his leadership bid, Mr Zahawi said: “I was clearly being smeared.

“I was being told that the Serious Fraud Office, that the National Crime Agency, that HMRC are looking into me. I’m not aware of this.”

It is unclear when Mr Zahawi first knew about the probe by HMRC, but his allies have said he told the Cabinet Office’s propriety and ethics team about the matter before his appointment.

Over the weekend, Mr Zahawi said HMRC concluded there had been a “careless and not deliberate” error in the way the founders’ shares, which he had allocated to his father, had been treated.

In a statement on Monday, following the PM’s announcement of an investigation into the matter, he added: “I am confident I acted properly throughout and look forward to answering any and all specific questions in a formal setting to Sir Laurie.”

Mr Zahawi has not confirmed how much his penalty amounted to or the value of the overall settlement with HMRC.

What has the prime minister said?

The prime minister has ordered his ethics adviser to investigate whether Mr Zahawi broke ministerial rules over the estimated £4.8m bill.

A week ago, Mr Sunak told MPs that Mr Zahawi had “already addressed the matter in full” – but Downing Street subsequently revealed the PM had not been aware that the Conservative Party chairman had paid a penalty to HMRC as part of the settlement.

Mr Sunak admitted there are “questions that need answering” as the inquiry was launched, and it is unclear what he knew when appointing Mr Zahawi to the cabinet-attending role.

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Downing Street subsequently suggested Mr Sunak did not know last week that Mr Zahawi had paid a reported 30% penalty to HMRC.

Probed on the matter by Labour leader Sir Keir Starmer at PMQs on Wednesday, the PM said: “The issues in question occurred before I was prime minister.

“With regard to the appointment of the minister without portfolio, the usual appointments process was followed, no issues were raised with me when he was appointed to his current role, and since I commented on this matter last week, more information has come forward.

“That is why I have asked the independent adviser to look into the matter.

“I obviously can’t prejudge the outcome of that but it is right that we fully investigate this matter and establish all the facts.”

Mr Sunak has so far resisted growing calls to remove Mr Zahawi from his current post.

Who has called for him to go?

Former minister Caroline Nokes said there were “too many unanswered questions” over the tax row as she called for Mr Zahawi to “stand aside and let the investigation run its course”.

Speaking to Sky News on Tuesday, Lord Hayward agreed that the Tory Party chairman should think about “standing aside” while parliament’s ethics watchdog investigates his tax affairs.

“We don’t know what the timescales are for the inquiry, and I think that’s key,” he said.

“I think he should be considering whether he stands aside for the period of the inquiry.”

But Home Office minister Chris Philp said on Monday that Mr Zahawi should be treated as “innocent until proven guilty” and it is “reasonable” for him to continue as party chairman.

“The investigation has been launched by the prime minister; that is the right thing to do. It will get to the bottom of this and then the prime minister will make his decision,” he said.

“But I don’t think it is fair to jump to any conclusions before the investigation has concluded.”

Labour said Mr Zahawi’s admitted carelessness should see him removed from government.

Shadow foreign secretary David Lammy told Sky News: “When you’ve been chancellor of the exchequer and you said you’ve been careless despite the fact that offshore trusts have been set up in Gibraltar, I’m sorry, you really ought to resign or be sacked.”

What does this mean for the PM?

The Zahawi tax affairs saga formed one of two controversies Mr Sunak has been forced to confront this week, with questions also being raised over the decision to appoint Richard Sharp as BBC chairman while he reportedly helped former Number 10 incumbent Mr Johnson secure a loan of up to £800,000.

The PM has also distanced himself from this allegation, saying the chairman’s appointment was made by “one of my predecessors”.

But these two incidents add to what has been a turbulent first few months in Number 10 for Mr Sunak.

On his first day as PM in October, Mr Sunak vowed to restore “integrity and accountability” to government – a promise which has now been called into question by a series of events.

A few days after entering Number 10, the PM was forced to defend re-appointing Suella Braverman as home secretary days after she quit over data breaches.

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Labour leader Sir Keir Starmer accused the new PM of doing a “grubby deal” with Ms Braverman to secure her support in the Tory leadership contest.

An independent probe was also launched into the conduct of another cabinet member – Deputy Prime Minister Dominic Raab – after he was subject to multiple complaints of bullying.

Mr Sunak initially stood by the justice secretary – who he reappointed to the role in the autumn – but eventually bowed to pressure to allow the formal probe.

On top of this, the prime minister received a second police fine last week, this time for failing to wear a seatbelt.

The first was received last year after he broke coronavirus rules during the partygate scandal.