Why Nadhim Zahawi's Taxes Are Causing Rishi Sunak Such A Headache

It seems the sleaze of the Boris Johnson era and chaos of Liz Truss’s premiership are now dogging a new prime minister. 

Any hopes that Rishi Sunak would bring calm to the government have been dashed this week as he faces scandals on multiple fronts.

He has already lost one cabinet minister over bullying claims and has a number of others facing fierce criticism. 

Johnson continues to cause a headache from the sidelines and there is the little embarrassment of the seatbelt gaffe.

But the major debacle facing the new prime minister surrounds the murky tax affairs of the chairman of the Conservative Party Nadhim Zahawi. 

Here, HuffPost UK talks you through the latest row engulfing Westminster and why it matters.

Who Is Nadhim Zahawi?

55-year-old Nadhim Zahawi was born in Iraq but fled as a refugee to the UK when he was nine.

His family had been influential in the country but feared for their lives when Saddam Hussein came to power in the late Seventies.

Zahawi grew up in Sussex, was educated at private and comprehensive schools and studied chemical engineering at University College London.

He went into business and set up a firm selling Teletubbies merchandise before co-founding pollsters YouGov in 2000.

He became a Tory MP in 2010 and was thrust into the limelight in the middle of the pandemic when he was made responsible for England’s Covid-19 vaccine roll-out.

Johnson made him education secretary in 2021 before he served as chancellor for two months during the chaos of the caretaker government.

The MP for Stratford-on-Avon also ran to be leader in the race to replace Johnson last year.

He remained at the top table under Truss who made him chancellor of the Duchy of Lancaster and Sunak made him chairman of the Conservative Party.

Nadhim Zahawi’s Taxes Explained

The allegations surround Zahawi’s links to a Gibraltar-based trust called Balshore Investments Limited – of which his father Hareth is a director.

When YouGov was set up, the trust was allocated shares equalling the number given to his co-founder Stephan Shakespeare.

Asked about this last year, the then chancellor said neither he nor his wife benefitted from the trust and denied it was used to avoid tax, saying it was because his father “lived abroad”.

The stake in the company owned by Balshore was eventually sold by 2018 for about £27 million.

Experts said that if Zahawi benefitted from that transaction he should owe tax on it.

They point to a document from 2005 that suggests he benefitted from the trust when Balshore at least partially covered a loan.

The whole saga was brought to light by tax lawyer Dan Neidle, who has been working to expose the Zahawi’s tax affairs.

What Happened?

Claims started emerging when Zahawi was made chancellor, with reports suggesting Cabinet Office officials alerted the then-prime minister Johnson to a HMRC dispute.

Zahawi has now admitted he paid what HMRC said “was due” after it “disagreed about the exact allocation” of shares in YouGov, an error he said was “careless” not deliberate. 

It has since emerged that Zahawi paid the penalty to HMRC while he was chancellor.

Zahawi has not disclosed the size of the settlement – reported to be an estimated £4.8 million including a 30% penalty – or confirm whether he paid a fine.

Neidle estimated that he owed £3.7 million. 

Zahawi released a statement to “address some of the confusion about my finances”.

He said: “Following discussions with HMRC, they agreed that my father was entitled to founder shares in YouGov, though they disagreed about the exact allocation. They concluded that this was a ‘careless and not deliberate’ error.

“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.” 

What Has Rishi Sunak Done About It?

The prime minister has asked his independent ethics adviser to look into Zahawi after Labour called for him to be sacked. 

Sunak said “clearly” there are “questions that need answering” and added: “That’s why I’ve asked our independent adviser to get to the bottom of everything, to investigate the matter fully and establish all the facts and provide advice to me on Nadhim Zahawi’s compliance with the ministerial code.

“I’m pleased that Nadhim Zahawi has agreed with that approach and has agreed to fully co-operate with that investigation.”

However, the decision to refer the case to the ethics adviser means there is unlikely to be an immediate conclusion to the row and Zahawi will remain in post.