Explained: Nadhim Zahawi’s tax row and his sacking as Conservative Party chairman

British prime minister Rishi Sunak’s government is in a world of crises and he added one more to them. On Sunday, he sacked the Conservative party chair, Nadhim Zahawi. The sacking comes for a “serious breach” of the Ministerial Code, following days of criticism over his personal tax arrangements.

The prime minister’s ethics adviser, Sir Laurie Magnus, found that Zahawi had made a “serious breach” of the code by not telling officials he was under investigation by the tax body when he was appointed chancellor by Boris Johnson.

The investigation also revealed that Zahawi had failed to officially declare that he had paid a settlement to HM Revenue and Customs (HMRC) for tax avoidance when he was given Cabinet positions by Liz Truss last September and when Sunak made him Tory chair and minister without portfolio in September.

In a letter to Zahawi, Sunak wrote, “Following the completion of the Independent Adviser’s investigation … it is clear that there has been a serious breach of the Ministerial Code. As a result, I have informed you of my decision to remove you from your position in His Majesty’s Government.”

Zahawi’s firing is a setback to Sunak’s attempt at a government reset and reinstalling faith in the Conservatives after their tumultuous years — that saw three different prime ministers in a year.

But, what exactly was the issue? Did Zahawi commit tax fraud? What’s the row all about? We take a deep dive and give you the answers.

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What is the story about?

The rise and rise of Nadhim Zahawi is what movie scripts are made of. Born in Iraq, his family fled to Britain during Saddam Hussein’s regime. He didn’t know a word of English when he touched British soils, but grew up in Sussex.

In May 2000, Zahawi rose to prominence when he co-founded the polling firm YouGov. According to reports and documents, when YouGov started 23 years ago, a Gibraltar-based company, Balshore Investments Limited, was given 42.5 per cent shares — the same given to YouGov’s co-founder Stephan Shakespeare.

Zahawi took no shares himself. Balshore was held by a trust controlled by Zahawi’s parents; he has said that the shares went to Balshore in recognition of his father’s role in setting up YouGov through the provision of start-up capital and advice.

As per people who worked in YouGov, the role of Hareth Zahawi, Nadhim’s father, was limited to an informal way.

Evidence from 2005 also appeared to show — at that point, before he became an MP — Nadhim Zahawi was benefitting from this offshore trust.

The question being asked was: Did Nadhim Zahawi’s father really merit such a big stake in the business or was it a way for the former Chancellor to avoid paying tax?

Spotlight on Zahawi’s finances aren’t new. In 2017, The Guardian had reported on Zahawi’s reported links to Balshore. Then in July last year, when Zahawi was appointed Chancellor by Boris Johnson, The Independent reported that his finances were under investigation.

Later, Dan Neidle, an independent tax expert, started to go through Zahawi’s business activities and reached the conclusion that Zahawi arranged for the shares that would otherwise have been his at YouGov’s founding to go to Balshore, and alleged that “the obvious rationale for this is tax avoidance”, a claim denied by the Conservative leader.

Multi-million pound settlement

Zahawi, the Conservative Party chairman, revealed only last week that he had made a payment to settle the dispute with HMRC. This was because the HMRC had disagreed with the number of shares given to his father.

According to a report in the BBC, the leader paid a total of about £5 million (Rs 50.53 crore), including a penalty of 30 per cent, though Zahawi didn’t confirm the amount. He was quoted as saying, “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 added that his father “took founder shares in the business in exchange for some capital and that the HMRC had accepted he was entitled to do so – but that “they disagreed about the exact allocation”. Because of this “careless and not deliberate” error, he said he had paid the penalty.

Zahawi reacts

After being dismissed by Rishi Sunak, Zahawi turned the tables, attacking the media’s coverage on the issue.

In his letter, Zahawi made no mention about his tax issues, but said he was “concerned” about the “conduct from some of the fourth estate in recent weeks”.

pic.twitter.com/qPFL6h5gn7

— Nadhim Zahawi (@nadhimzahawi) January 29, 2023

The former chancellor called it the privilege of his life to serve in successive governments and assured his support to the prime minister from the backbenches, adding: “Your five priorities are the right priorities, and I will do whatever I can to help you deliver them.”

With inputs from agencies

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