{"id":7196,"date":"2022-07-13T12:34:07","date_gmt":"2022-07-13T11:34:07","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=7196"},"modified":"2022-10-10T22:02:59","modified_gmt":"2022-10-10T21:02:59","slug":"zahawi-capital","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2022\/07\/13\/zahawi-capital\/","title":{"rendered":"Did Nadhim Zahawi&#8217;s family trust provide any capital for its 45% founder stake in YouGov?"},"content":{"rendered":"\n<p><em>This is now largely of historic interest; after I published this analysis, Zahawi&#8217;s people started putting out a different story &#8211; that Balshore received the shares because Zahawi &#8220;had no experience of running a business at the time and so relied heavily on the support and guidance of his father, who was an experienced entrepreneur&#8221;. That always seemed unlikely, and has been <a href=\"https:\/\/www.thetimes.co.uk\/article\/nadhim-zahawi-may-have-avoided-millions-in-tax-with-trust-0n8mt7kj7\" target=\"_blank\" rel=\"noreferrer noopener\">debunked <\/a>by The Times. <\/em><\/p>\n\n\n\n<p>Rather than complicate my already long <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/zahawi\" target=\"_blank\">report<\/a> on the Zahawi\/YouGov arrangements, I&#8217;m putting this onto a separate page. It consolidates my <a rel=\"noreferrer noopener\" href=\"https:\/\/twitter.com\/DanNeidle\/status\/1547167726963236864?s=20&amp;t=YmVWIg3880cGDi4t4jfREQ\" target=\"_blank\">Twitter thread<\/a> posted earlier this morning.<\/p>\n\n\n\n<p>Nadhim Zahawi founded YouGov, but took no shares in it. A Gibraltar company, Balshore Investments, did instead. Zahawi says this wasn&#8217;t tax avoidance, but was his father injecting capital into the business. Is there any evidence for that?<\/p>\n\n\n\n<p>I&#8217;ll go through the trail of evidence of YouGov&#8217;s capital, from its founding in 2000 to the IPO in 2005.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"executive-summary\">Executive Summary<\/h2>\n\n\n<p>There are only three possibilities:<\/p>\n\n\n\n<p>1. I am missing something.<\/p>\n\n\n\n<p>2. Balshore did provide capital, but this was omitted from all of YouGov&#8217;s accounts and filings, and not even picked up during the IPO.<\/p>\n\n\n\n<p>3. Zahawi is lying, and this was tax avoidance.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"the-evidence\">The evidence<\/h2>\n\n\n<p>When a company issues shares, it has to complete Companies House form 88(2). I&#8217;ve consolidated all of YouGov&#8217;s pre-IPO forms <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/assets\/pre-IPO_forms_88-2.pdf\" target=\"_blank\">here<\/a>. Going through them one-by-one:<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"yougovs-first-share-issuance-may-2000\">YouGov&#8217;s first share issuance, May 2000<\/h2>\n\n\n<p>The original share issuance looks like this (first two pages of the <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/assets\/pre-IPO_forms_88-2.pdf\" target=\"_blank\">PDF<\/a>):<\/p>\n\n\n\n<ul><li>Neil Copp provided \u00a3287,500 of capital &amp; got 15% of the shares. <\/li><li>Stephan Shakespeare provided no capital and got 42.5%. He was one of the two principal founders &#8211; so that&#8217;s unsurprising. The shares were a reward for his work.<\/li><li>Zahawi, the other founder, got nothing. That is surprising and unusual<\/li><li>Balshore, on the other hand, got the same deal as Shakespeare. 42.5% of the shares for no payment. There is no suggestion Balshore provided any services (and that would have been disclosed as a related party transaction).<\/li><\/ul>\n\n\n\n<p>But perhaps the form is wrong and Balshore did provide capital. Let&#8217;s look at the accounts &#8211; here&#8217;s the balance sheet from two months after that share issuance:<\/p>\n\n\n\n<figure class=\"wp-block-image is-resized is-style-default\"><img fetchpriority=\"high\" decoding=\"async\" src=\"https:\/\/pbs.twimg.com\/media\/FXie7JoXoA0oc4w.jpg\" alt=\"\" width=\"485\" height=\"679\"\/><\/figure>\n\n\n\n<p>No sign of any equity capital other than Copp&#8217;s.<\/p>\n\n\n\n<p>Startups often make mistakes, and Companies House filings and accounts can be wrong. This is generally picked up as a company matures&#8230; particularly if it&#8217;s planning an IPO (which is the path YouGov was on).<\/p>\n\n\n\n<p>YouGov did just that&#8230; in 2002, YouGov filed a Companies House form showing Shakespeare and Balshore each acquired more shares back in 2000. But for &#8220;nominal&#8221; value &#8211; only \u00a37k each. It is likely (but we cannot be sure) that the \u00a37k was paid in 2002, not 2000, and that the document was backdated. It is also possible the \u00a37k was really paid in 2000, and they just forgot to file the form until 2002&#8230; but that would mean all the accounts between 2000 and 2002 were wrong, which feels unlikely (and would ordinarily have been corrected subsequently when the mistake was recognised).  <\/p>\n\n\n\n<p>This wasn&#8217;t a capital injection &#8211; just (typical) cheap shares for founders.<\/p>\n\n\n\n<p>Balshore wasn&#8217;t a founder. Why did it get this?<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"other-preipo-share-issuances\">Other pre-IPO share issuances<\/h2>\n\n\n<p>There were a load more share issuances in the next few years &#8211; starting on page 5 of the <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/assets\/pre-IPO_forms_88-2.pdf\" target=\"_blank\">PDF<\/a>.<\/p>\n\n\n\n<ul><li>The wonderful Peter Kellner got involved, so got shares for free. As did Roland Berger &amp; Partners (consulting firm).<\/li><li>A series of small freebie shares were dished out to employees and consultants (including <a href=\"https:\/\/twitter.com\/JamesDuddridge\">@JamesDuddridge<\/a>). Again, perfectly normal for a startup.<\/li><li>Chime Communications then acquired 27,500 shares for the (bargain) nominal price of 10p each. There&#8217;s a good reason for that &#8211; we&#8217;ll come to it later.<\/li><li>27 November 2001. More consultants got to acquire cheap shares.<\/li><li>Then Peter Kellner gets to buy more shares at the cheap but eccentric price of 6.1p each. Then the same a few months later, and again, and again. He&#8217;s paying a bit, but it&#8217;s not what you&#8217;d call capital.<\/li><li>We&#8217;re up to page 24 of the <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/assets\/pre-IPO_forms_88-2.pdf\" target=\"_blank\">PDF<\/a>, and it&#8217;s August 2003: another consultant pays nominal 1p each for some shares.<\/li><li>There are now a lot of shareholders. At this point, founders often want to preserve their ability to take dividends without giving dividends to everyone. That happens on page 26 of the <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/assets\/pre-IPO_forms_88-2.pdf\" target=\"_blank\">PDF<\/a>: Shakespeare, Zahawi, Kellner each get two special shares (with Shakespeare&#8217;s giving one of his to his wife).<sup class=\"modern-footnotes-footnote \" data-mfn=\"1\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_7196\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_7196-1\">1<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_7196-1\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"1\">Thanks to K for the correction here &#8211; I&#8217;d wrongly said they were special voting shares<\/span><\/li><li>Start of 2005 &#8211; another consultant gets shares for 1p each:<\/li><\/ul>\n\n\n\n<p>And that takes us up to the April 2005 IPO.<\/p>\n\n\n\n<p>At this point I count \u00a3113,630 of share capital, \u00a3312,711 of share premium.<\/p>\n\n\n\n<p>None of that was from Balshore.<\/p>\n\n\n\n<figure class=\"wp-block-image is-resized is-style-default\"><img decoding=\"async\" src=\"https:\/\/pbs.twimg.com\/media\/FXidqx9XgAAznId.png\" alt=\"\" width=\"519\" height=\"366\"\/><\/figure>\n\n\n\n<p>That is broadly consistent with the Jan 2005 balance sheet &#8211; except it shows  \u00a3370,767 of share premium:<\/p>\n\n\n\n<figure class=\"wp-block-image is-resized is-style-default\"><img decoding=\"async\" src=\"https:\/\/pbs.twimg.com\/media\/FXieb_LWYAIKKnV.jpg\" alt=\"\" width=\"594\" height=\"677\"\/><\/figure>\n\n\n\n<p>I can&#8217;t see where the additional \u00a358k comes from, but it&#8217;s hardly a significant amount of capital, and it wasn&#8217;t Balshore (as they haven&#8217;t received any shares since 2000).<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"debt-finance\">Debt finance<\/h2>\n\n\n<p>There are broadly two ways to finance a company: equity (shares) and debt (loans, bonds, etc). Could Balshore have provided debt finance and that&#8217;s how it got the shares for free?<\/p>\n\n\n\n<p>Back in 2000, the year Balshore got its shares, there were \u00a391,459 of &#8220;other creditors&#8221;. Could that be debt finance from Balshore?<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized is-style-default\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/image-732x1024.png\" alt=\"\" class=\"wp-image-7198\" width=\"327\" height=\"457\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/image-732x1024.png 732w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/image-768x1075.png 768w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/image.png 1156w\" sizes=\"(max-width: 327px) 100vw, 327px\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-large is-resized is-style-default\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/image-1-1024x415.png\" alt=\"\" class=\"wp-image-7200\" width=\"430\" height=\"174\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/image-1-1024x415.png 1024w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/image-1-768x312.png 768w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/image-1.png 1696w\" sizes=\"(max-width: 430px) 100vw, 430px\" \/><\/figure>\n\n\n\n<p>Doesn&#8217;t look like it. The \u00a391k is still there in the next few years, but there&#8217;s no corresponding entry in Balshore&#8217;s accounts &#8211; just \u00a335k (which I assume is an estimate of the value of its YouGov stake, but could be something else).<\/p>\n\n\n\n<figure class=\"wp-block-image is-resized is-style-default\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/pbs.twimg.com\/media\/FXij-XQWYAMn7jv.png\" alt=\"\" width=\"523\" height=\"657\"\/><\/figure>\n\n\n\n<p>It&#8217;s possible Balshore&#8217;s accounts are wrong, and the \u00a391k was a loan from Balshore.<\/p>\n\n\n\n<p>But it&#8217;s not credible for Neil Copp to pay \u00a3287,500 cash for a 15% stake, but Balshore to *lend* \u00a391k and get a 45% stake. Commercially people just don&#8217;t behave like that (and it probably would have been contrary to company law).<\/p>\n\n\n\n<p>There <strong>was <\/strong>some reasonably significant debt funding, but from Chime Communications and not Balshore. Which explains why (way upthread) Chime got cheap shares.<\/p>\n\n\n\n<figure class=\"wp-block-image is-style-default\"><img decoding=\"async\" src=\"https:\/\/pbs.twimg.com\/media\/FXignOgX0AIss1j.jpg\" alt=\"\"\/><\/figure>\n\n\n<h2 class=\"wp-block-heading\" id=\"the-conclusion\">The conclusion<\/h2>\n\n\n<p>Zahawi is saying that Balshore got a 45% stake in YouGov because it provided capital to YouGov.<\/p>\n\n\n\n<p>There is zero evidence of any capital from Balshore (except, just about possibly, a \u00a391k loan &#8211; but that wouldn&#8217;t justify a 45% stake).<\/p>\n\n\n\n<p>I see only three possibilities:<\/p>\n\n\n\n<ol><li>I am missing something. What?<\/li><li>Balshore did provide capital, but this was omitted from all of YouGov&#8217;s accounts and filings, and not even picked up during the IPO (when financial statements are carefully checked).<\/li><li>Zahawi is lying, and this was tax avoidance.<\/li><\/ol>\n\n\n\n<p>I don&#8217;t accuse someone of lying frivolously. But Zahawi is making a definitive claim and, right now, there is just no evidence for it. If the answer is indeed that I&#8217;ve made a mistake, or the YouGov and Balshore filings are all mistakes, Zahawi should prove it by pointing us towards some actual evidence. Not just making assertions in background briefings to journalists.<\/p>\n\n\n\n<p>For anyone wanting to go hunting:<\/p>\n\n\n\n<ul><li><a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/assets\/pre-IPO_forms_88-2.pdf\" target=\"_blank\">here<\/a> are all the pre-IPO 88(2) forms in one place<\/li><li>the <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/assets\/yougov_2000_accounts.pdf\" target=\"_blank\">2000 YouGov accounts<\/a><\/li><li>The last pre-IPO YouGov <a href=\"https:\/\/heacham.neidles.com\/assets\/yougov_jan_2005_balance_sheet.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">balance sheet<\/a><\/li><\/ul>\n\n\n\n<p>And <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/zahawi\" target=\"_blank\">this<\/a> was my previous analysis, for which this post really serves as an appendix.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Nadhim Zahawi founded YouGov, but took no shares in it. A Gibraltar company, Balshore Investments, did instead. Zahawi says this wasn&#8217;t tax avoidance, but was his father injecting capital into the business. Is there any evidence for that?<\/p>\n","protected":false},"author":1,"featured_media":7128,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[141],"tags":[119,106,124,128],"jetpack_featured_media_url":"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/5504.webp","_links":{"self":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/7196"}],"collection":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/comments?post=7196"}],"version-history":[{"count":8,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/7196\/revisions"}],"predecessor-version":[{"id":8075,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/7196\/revisions\/8075"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media\/7128"}],"wp:attachment":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media?parent=7196"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/categories?post=7196"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/tags?post=7196"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}