I spent a chunk of my weekend completing my 2021/22 Self Assessment tax return. Yes, I know, “left it a bit late, didn’t you, Mark?”. Luckily, my tax return isn’t terribly complicated once I’ve found the required bits of information online and elsewhere.
Nadhim Zahawi appears to have had a rather more complex task or, should I say, his tax advisors. That’s partly a problem of his own creation – offshore trust funds aren’t obligatory – and partly the increasingly complex web of tax law in this country.
There is little doubt that, the more complex the tax system is, the more need there is for professional tax advisors and the more scope there is for creative uncertainty. The more you try to create opportunities in an effort to encourage what the Government of the day believes is desirable behaviour, the more you invite terribly clever people to find ways of taking advantage of the unintended consequences of those changes. People tend, often, to reduce their personal tax burden if they can. Wealthier people can pay to find the more obscure means of doing so, and the British legal and accounting professions are very, very good at delivering the desired outcome.
There are, of course, ways in which Government can address this. More HMRC compliance staff is one, for whilst tax inspectors aren’t exactly what you’d want knocking at your door, the public quite like the idea of “crooks” being caught and punished. They don’t necessarily come cheap, but the theory is that they pay for themselves in additional tax yield quite quickly. As Danny Alexander put it in 2012;
We are putting in place additional investment to beef up the scrutiny which HMRC are able to put on the affairs of people worth more than £1m, the vast majority of whom pay their taxes completely properly, but a small minority of whom are trying to get away with not paying their fair share.
Alternatively, you can simplify the tax system to remove some of the tax incentives which have spawned over two decades of sometimes radical tax policy. You might cause significant job losses amongst the accounting and legal professions (and possibly within HMRC too) but, on the other hand, you would potentially reduce the cost of compliance.
We’ll probably never know the full story behind Nadhim Zahawi’s tax affairs, albeit that I’m surprised as to how much was out there before Sir Laurie Magnus wrote his letter to Rishi Sunak yesterday. And there is nothing wrong, in itself, with investing your money overseas or using trusts to legally reduce your liability to tax. But, as a senior Government figure, it probably gives an impression that you don’t want to give, and leads to a bunch of other questions that you might be uncomfortable about answering.
The irony is that, in the end, it wasn’t his tax affairs that did for Nadhim Zahawi, it was his failure to declare the resultant interest and the attempts to crush the story with threats of legal action. Declarations of interest are a concept that is familiar at every tier of government, all the way down to micro-Parishes like mine in Creeting St Peter, and they matter. The public are entitled to know what might potentially influence my decisions, and that through transparency, I can be held to account if I fall below the required ethical and moral standards. It is perhaps the greatest indictment of Nadhim Zahawi that he either didn’t understand that responsibility, or simply didn’t care.
* Mark Valladares is the Monday Editor of Liberal Democrat Voice and the Chair of a small Parish Council in Suffolk’s Gipping Valley.
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10 Comments
It was under Johnson that Nadhim Zahawi was appointed as Chancellor of the Exchequer, when the department that he was appointed to had already been investigating Zahawi for tax evasion. Johnson should be answerable to this, as he still should be for other dodgy dealings from which his acolytes profited egregiously.
As my website shows, I spent almost my entire career as a tax adviser, culminating in 19.5 years as a PwC Tax Partner.
Britain should do better at learning and copying from other countries. Norway publishes everyone’s tax returns online. See https://www.theguardian.com/money/blog/2016/apr/11/when-it-comes-to-tax-transparency-norway-leads-the-field I consider that the UK should do this, and it would achieve major cultural and behavioural change.
In passing, from the information in the media (I have no private information), my conclusion is that Nadhim Zahawi was engaged in a scheme to avoid capital gains tax which failed. The time lapse between the original transactions and the YouGov sale, and the settlement with HMRC + the 30% penalty suggests to me that his disclosure was inadequate, but one could only know if all of the documents were published.
Mohammed Amin: re: “his disclosure was inadequate”
More than this, intentionally inadequate, if we listen to Jim Harra, chief executive of HMRC: “There are no penalties for innocent errors in your tax affairs”. Zahawi incurred 30% penalties, ergo …
On 10th July, 2022, before Zahawi was appointed as Chancellor, The Observer reported that Johnson had already been warned by the Cabinet Office about HMRC investigations into Zahawi’s tax evasion.
“if we listen to Jim Harra, chief executive of HMRC: “There are no penalties for innocent errors in your tax affairs””
I got the impression from his tone that Jim Harra was quite angry about it all.
The level of penalty for self-assessment tax return errors is determined by an evaluation of the care you take in submitting required data.
If it is clear that you took reasonable care and any error was an innocent mistake, then no penalty need be assessed.
If you have been careless in submitting data then a penalty of up to 30% on top of the tax underpaid can be levied.
When a mistake is considered as deliberate, a penalty of between 20% to 70% can be charged and between 30% to 100% when it is both deliberate and concealed.
There are other factors that can affect the amount of the penalty based on how the person behaved after the error came to light. If the person was helpful, HMRC may reduce the penalty.
Mr Zahawi has indicated that he made a careless error in his returns and was assessed a penalty as a consequence.
As Mohammad comments above, it appears Mr Zahawi was engaged in a scheme of arrangements to avoid capital gains tax which failed. He would not be the first minister to face tax problems. However, as Mark writes it wasn’t his tax affairs that did for Nadhim Zahawi, it was his failure to declare the resultant interest and the attempts to crush the story with threats of legal action.
When moving a large sum of money from a tax haven, like Gibraltar undoubtedly is, and £27 million also indoubtedly is a large sum, it would seem reasonable to get a tax advisors written advice of the potential tax liability involved.
If the advice turned out to be wrong then NZ would have a case. However, AIUI, no such advice was sought. This has to be more than mere carelessness.
This scandal also relates to the question of Gibraltar’s supposed Britishness. If Gibraltarians want to be British, and the evidence is very much that they do, they need to be properly British. Didn’t the last vote show something like 95% support on the issue?
This means somewhat more than displaying photos of our King or Queen on the inside of Government buildings. It means following all our laws including our tax laws. This involves paying VAT at 20%, income tax at up to 45%, capital gains tax at up to 28% etc.
In return they should be quite entitled to representation at Westminster and with a degree of political devolution which can be on similar lines to what already exists in Scotland.
@Martin
You have used the word “tax evasion” in a couple of your comments. Nothing I have learned about Nadhim Zahawi’s tax affairs in the media gives any reason to believe that there was any tax evasion.
In case you are not aware of the difference between tax avoidance and tax evasion, see this briefing from the House of Commons library.
https://commonslibrary.parliament.uk/research-briefings/cbp-7948/
There is a clearer US source explanation linked below, which I consider is equally accurate for the UK.
https://www.nerdwallet.com/article/taxes/tax-evasion-vs-tax-avoidance
Mohammed Amin – ????
Can you really incur massive penalties from HMRC for legal tax avoidance?
Are all those with investments in ISAs liable for penalties? – I do not think so.
I guess you want to make a distinction between a tax avoidance scheme that fails to work out and tax evasion. If you have taxable income for which you do not provide proper information, that is tax evasion. I do not know what you want to call it, but it cannot be tax avoidance because it is not legitimate.
Martin,
the issue of tax avoidance vs tax evasion in complex affairs can be a fine line as this blog discusses It’s wrong to say Nadhim Zahawi evaded tax. It’s also wrong to say he didn’t. Here’s why. “As lawyers always say: it depends”. Tax evasion constitutes a criminal offence under English law (as enacted by Parliament and interpreted by the courts) and, accordingly, is a predicate offence for money laundering.