{"id":8743,"date":"2023-01-22T09:45:01","date_gmt":"2023-01-22T09:45:01","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=8743"},"modified":"2023-01-31T15:56:29","modified_gmt":"2023-01-31T15:56:29","slug":"zahawi_statement","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2023\/01\/22\/zahawi_statement\/","title":{"rendered":"What the Zahawi statement tells us, and what we still don’t know"},"content":{"rendered":"\n

UPDATE: this was written right after Zahawi issued his statement on 21 January<\/em>. The timeline in that statement is contradicted by Sir Laurie Magnus’ conclusions in his letter to the Prime Minister<\/a>, but I won’t update this piece. Suffice to say that it’s now clear Zahawi knew he had a serious tax problem well before he became Chancellor in July 2022 and, when I started analysing the Balshore structure that same month, it seems likely that HMRC were well ahead of me. <\/strong><\/p>\n\n\n\n

The Telegraph is carrying a statement from Zahawi<\/a>. <\/p>\n\n\n\n

I gave an interview to BBC Breakfast this morning:<\/p>\n\n\n\n

My commentary on the statement<\/h2>\n\n\n

As a senior politician, I know that scrutiny and propriety are important parts of public life<\/strong>. Twenty-two years ago, I co-founded a company called YouGov. I\u2019m incredibly proud of what we achieved. It is an amazing business that has employed thousands of people and provides a world-beating service.<\/strong><\/p>\n\n\n\n

I agree. YouGov, and Zahawi’s role in founding it, is an amazing British success story. He should be proud of it.<\/p>\n\n\n\n

When we set it up, I didn\u2019t have the money or the expertise to go it alone, so I asked my father to help. In the process, he took founder shares in the business in exchange for some capital…<\/strong><\/p>\n\n\n\n

The “some capital” is a lie. It’s backing down from his initial claim that “startup capital” was provided – it’s now merely “some”. But it’s still not true. The facts are<\/a> that his father\/Balshore provided no capital at the time, and paid a nominal \u00a37,000 two years later (with a Companies House form backdated – and by 2002, \u00a37,000 was a triffling amount to the company). When I first called this a lie, Zahawi’s lawyers threatened to sue me for libel. When I pointed out the backdated form, they went silent, and never responded on the point. I don’t understand why Zahawi continues to raise a point that even his lawyers backed away from.<\/p>\n\n\n\n

… and his invaluable guidance.<\/strong><\/p>\n\n\n\n

This was Zahawi’s fallback explanation, after I disproved the “capital”. The problem is that it contradicts all the published history of YouGov, everyone The Times talked to, and was denied by YouGov itself (in an official statement given to The Times). I wrote more about this here<\/a>.<\/p>\n\n\n\n

Twenty-one years later, when I was being appointed Chancellor of the Exchequer<\/a>, questions were being raised about my tax affairs. I discussed this with the Cabinet Office at the time.<\/strong><\/p>\n\n\n\n

Following discussions with HMRC…<\/strong><\/p>\n\n\n\n

The timeline jumps here. It misses the small detail of me saying I thought he’d failed to pay \u00a33.7m in tax, him sending lawyers to threaten me and half of Fleet Street with libel writs, and him issuing denials that anything was wrong. <\/p>\n\n\n\n

When exactly did he realise that I was right, his denials were wrong, and approach HMRC? <\/p>\n\n\n\n

It also misses the timeline of when the “taxable event” happened – the thing that resulted in him having the large tax bill. This was either all or almost-entirely-all much more recent than twenty-one years ago. The big gain on the YouGov shares was in 2017\/18. This is not ancient history – it’s when Zahawi was a successful and wealthy man, who you would expect to have very competent tax advisers.<\/p>\n\n\n\n

The tax return for 2017\/18 was due by 31 January 2019, and could have been amended to reflect the disposal at any time up to 31 January 2020 (assuming it was not filed late). So we are talking about events of only 3-4 years ago. <\/p>\n\n\n\n

… they agreed that my father was entitled to founder shares in YouGov, though they disagreed about the exact allocation<\/strong>. <\/p>\n\n\n\n

Unclear quite what that means – it goes to the technical basis for taxing him. Obviously, his father was “entitled” to the shares, because he owned them, as a result of Zahawi’s generous decision in 2000 to arrange for YouGov to issue them to Balshore for free. <\/p>\n\n\n\n

Perhaps this is suggesting the arrangement was a settlement, with Zahawi a beneficiary as to x% and his father to y%? But that’s a point of technical detail which goes down a long rabbit hole, and I won’t go further into here. The various technical ways in which Zahawi could have been taxed are fascinating, but which one was actually used doesn’t affect my conclusions – it’s also possible the neither HMRC nor the settlement needed to conclude this, and just stated an amount.<\/p>\n\n\n\n

They concluded that this was a \u2018careless and not deliberate\u2019 error.<\/strong><\/p>\n\n\n\n

If it was deliberate, he’d be prosecuted for criminal tax evasion. HMRC “concluding” it wasn’t criminal isn’t a ringing endorsement. <\/p>\n\n\n\n

\u201cSo 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. <\/strong><\/p>\n\n\n\n

This implies it was some obscure technical point, which could have gone either way, and he chose to pay up. That isn’t what happened. 30% penalties don’t get charged for being on the wrong side of obscure technical points. He was “careless”. <\/p>\n\n\n\n

What does that mean? Well, it’s easy to not be “careless”: instruct proper advisers, give them all the information relevant to your tax return, follow their advice, and check your tax return (as best as you reasonably can). Then, even if your advisers turn out to have been complete idiots, the law and HMRC will agree that you weren’t careless.<\/p>\n\n\n\n

So we now know for a fact Zahawi didn’t do this.<\/p>\n\n\n\n

We can’t know for sure what went wrong but, under the circumstances, my view (and that of most other experts I’ve spoken to) is that the most likely scenario is that he received somewhere around \u00a327m, didn’t obtain proper advice, and didn’t declare it to HMRC. <\/p>\n\n\n\n

That settlement almost certainly contained a written admission by Zahawi of default – that he had failed to meet his obligations. That is HMRC standard practice, published here<\/a>. <\/p>\n\n\n\n

Additionally, HMRC agreed with my accountants that I have never set up an offshore structure, including Balshore Investments<\/strong><\/p>\n\n\n\n

Games with words. We know his father set it up.<\/p>\n\n\n\n

We know Zahawi likes these games. When The Sun reported the story, he said<\/a> he didn’t have “lawyers” negotiating the settlement with HMRC. He now admits there was a negotiated settlement, but it was actually “accountants”.<\/p>\n\n\n\n

I regard these kind of games as an attempt to deceive – as a lie – and I expect most people in and outside politics will have a similar view.<\/p>\n\n\n\n

and that I am not the beneficiary of Balshore Investments.<\/strong><\/p>\n\n\n\n

More games. Balshore Investments is a company. Nobody is a beneficiary of Balshore Investments.<\/p>\n\n\n\n

The question is: is he a beneficiary of the trust? He has denied this in the past. His lawyers denied it to me as recently as 1 December 2022. There’s clear evidence it’s not true<\/a>, and that he received a gift from Balshore on one occasion. By sheer luck, a corporate goof meant that this was disclosed in the YouGov 2005 IPO papers. It seems likely there were other gifts. Perhaps these are more games, and Zahawi is using “beneficiary” in a way I do not understand.<\/p>\n\n\n\n

This matter was resolved prior to my appointments as Chancellor of the Duchy of Lancaster and subsequently chairman<\/a> of the party I love so much. When I was appointed by the Prime Minister, all my tax affairs<\/a> were up to date.<\/strong><\/p>\n\n\n\n

If true, this means he negotiated and signed a settlement with HMRC when he was Chancellor of the Exchequer. The phrase “conflict of interest” seems insufficient. <\/p>\n\n\n\n

When Winston Churchill was Chancellor, he famously<\/a> summoned the Chairman of the Board of the Inland Revenue, and had him devise a tax avoidance scheme to convert his income into capital, so it escaped tax (there was no CGT at the time). Times have changed. And Zahawi, whilst an impressive figure in many ways, is not Churchill. <\/p>\n\n\n

Key outstanding questions<\/h2>\n\n\n
    \n
  1. When did Zahawi become aware he had unpaid tax, and how? Was it sparked by my July report<\/a>?<\/li>\n\n\n\n
  2. Why did he respond to me, and others reporting on his tax affairs, with libel threats<\/a> rather than simply saying there were questions he was looking into?<\/li>\n\n\n\n
  3. What were the income\/gains on which he is taxed? My expectation is that this is around \u00a327m originating in Balshore’s gain on the YouGov shares, returned in some form – directly or indirectly – to Zahawi.<\/li>\n\n\n\n
  4. If that’s right, why did he repeatedly deny benefitting from Balshore and the trust?<\/li>\n\n\n\n
  5. Why didn’t he declare the \u00a327m (or whatever the precise figure was) to HMRC? It was a huge figure. About a third of his net wealth at the time.<\/li>\n\n\n\n
  6. When did he\/his advisers approach HMRC for a settlement? <\/li>\n\n\n\n
  7. If it was at a time when he was Chancellor, how was the obvious conflict of interest declared and handled?<\/li>\n\n\n\n
  8. Was the settlement under COP 9<\/a> – the procedure where HMRC suspects tax fraud? This can end in a contractual settlement of precisely the kind Zahawi entered into, i.e. if HMRC conclude they suspect but can’t prove fraud.<\/s> Osborne Clarke, Zahawi’s lawyers, have told me that HMRC did not apply COP 9.<\/li>\n\n\n\n
  9. In the experience of advisers who work in this area, a 30% penalty implies Zahawi and his advisers did not provide full and complete cooperation. Why was that?<\/li>\n\n\n\n
  10. Settlements usually<\/a> contain a written admission by the taxpayer that they had failed to meet their legal obligations – i.e. that their taxes were, prior to the settlement, in default. Did his?<\/li>\n\n\n\n
  11. If it did, then why has he repeatedly said that he has always reported, and paid, the tax that is due? <\/li>\n\n\n\n
  12. When was the settlement finalised? <\/li>\n\n\n\n
  13. Why did he attempt to mislead The Sun, by saying he didn’t have “lawyers” negotiating the settlement?<\/li>\n<\/ol>\n\n\n\n

    I’m ignoring the many technical questions about the nature of the arrangement and how it was taxed – they’re less important now. I’m also ignoring some of the other questions around Mr Zahawi’s tax affairs, in particular the \u00a330m unsecured loans into Zahawi & Zahawi (the company established by Nadhim and his wife, and now solely in her name). The loans come from an unknown party – but the nature of these loans means its likely someone closely connected to him.<\/p>\n\n\n\n

    <\/p>\n\n\n\n

    <\/div>\n\n\n\n
    \n\n\n

    Comment policy<\/h2>\n\n\n

    This website has benefited from some amazingly insightful comments, some of which have materially advanced our work. Comments are open, but we are really looking for comments which advance the debate – e.g. by specific criticisms, additions, or comments on the article (particularly technical tax comments, or comments from people with practical experience in the area). I love reading emails thanking us for our work, but I will delete those when they’re comments – just so people can clearly see the more technical comments. I will also delete comments which are political in nature. <\/p>\n\n\n\n\n","protected":false},"excerpt":{"rendered":"

    UPDATE: this was written right after Zahawi issued his statement on 21 January. The timeline in that statement is contradicted by Sir Laurie Magnus’ conclusions in his letter to the Prime Minister, but I won’t update this piece. Suffice to say that it’s now clear Zahawi knew he had a serious tax problem well before […]<\/p>\n","protected":false},"author":1,"featured_media":8796,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[141],"tags":[128],"jetpack_featured_media_url":"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/01\/Screenshot-2023-01-24-at-14.23.31.png","_links":{"self":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8743"}],"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=8743"}],"version-history":[{"count":30,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8743\/revisions"}],"predecessor-version":[{"id":8918,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8743\/revisions\/8918"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media\/8796"}],"wp:attachment":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media?parent=8743"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/categories?post=8743"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/tags?post=8743"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}