Nadhim Zahawi is the Conservative Party Chairman and previous Chancellor of the Exchequer who this month paid around £5 million in tax, which included a 30% penalty from the HMRC for underpayment of previous taxes.
To understand why Zahawi received this tax penalty we need to go back to the year 2000 when Zahawi co-founded the well known polling site YouGov.UK.
At that time Zahawi’s partner received 40% of the YouGov shares, while Zahawi received none but another 40% of the shares went to company called Balshore Investments which is located in Gibralter and has a history as a tax haven.
Later on it emerged that Balshore Investments was owned by Zahawi’s parents who don’t live in the U.K. and he claims he he gave them those shares to in exchange for advise on how to set up YouGov.
Balshore, or Zahawi’s parents, eventually went on to sell said shares for a capital gain of around £27 million, which, had this been based in the U.K. would have been taxed at around £3. 7 million.
There are YouGov documents showing that one dividend cheque for £99 000 was redirected to Zahawi,
YouGov financial documents reveal that a share dividend of £99 000 was redirected from Balshore to Zahawi, suggesting that he was benefiting financially from these shares.
Analysis by Dan Neidle, a tax lawyer, suggests that Zahawi has basically just been made to pay ALL of the tax due on the sale of those shares (£3.7 million) plus a 30% fine by the HMRC because he was ‘careless’ in reporting his capital gains from the sale of these shares.
Carelessness or Tax Evasion?
The fact that HMRC charged Zahawi a 30% penalty means they classified his omission of information from his tax return as ‘moderately serious’, it was a result of ‘carelessness’ rather than it being a deliberate omission.
‘Careless mistakes’ on a tax return are penalised by 30% penalties whereas deliberate withholding of information for financial gain is regarded as tax evasion which carries a prison sentence of up to 7 years.
Now technically this investigation into Zahawi is over and legally his failure to report his tax affairs accurately in the past have been constructed as ‘carelessness’.
And I am sure that technically he has done nothing wrong in the eyes of international law or British Laws: using your parents’ company in a tax haven stash shares which then grow in value and then sell as a profit technically isn’t tax evasion.
But hang on…. HMRC have made him pay tax on the profit he made from those shares…? So surely this was an example of tax evasion?
Maybe his carelessness was that he tried to use loopholes to evade tax deliberately but then one document created a paper trail and that messed up his despicable scheme?
So maybe the serious fraud office and the national crime agency should be investigating this too?
At the very least we have to question the morality of a former Chancellor over this, and this certainly doesn’t fit into the demands by Rishi Sunak that the Tory Party should display ‘Integrity, Professionalism and Accountability’ going forwards!
Relevance to A-Level Sociology
This material is most relevant to Crime and Deviance.
It is a useful reminder of how crime is socially constructed in that the financial crime of misreporting taxes has layers of seriousness to it which can be interpreted flexibly by the HMRC.
It seems that this flexibility gives people the opportunity to push the boundaries and risk withholding information without financial gain with a reduced threat of going to prison, the maximum penalty being a 30% fine on what profit you’ve made, which for the very rich, that might just be worth the gamble!
(1) BBC – Ross Atkins on Nadhim Zahawi’s Tax Affairs.
Kinsella Tax – Tax Evasion Penalties – HMRC UK.