The Nadhim Zahawi tax row has been making headlines, and now the MP has been sacked as Conservative Party chairman.

Prime Minister Rishi Sunak fired Mr Zahawi after an inquiry found he had breached the ministerial code.

The investigation by the PM’s ethics adviser, Sir Laurie Magnus, concluded Mr Zahawi had failed to declare he was under investigation by HMRC when he was appointed Chancellor on 5 July 2022. Mr Zahawi also failed to update his declaration of interest form appropriately after a settlement was agreed in principle in August 2022.

Background to the Nadhim Zahawi tax saga

Last month, Mr Zahawi released a statement acknowledging he’d reached a settlement with HMRC following an investigation by the tax body.

The probe is said to have centred on a non-payment of capital gains tax due after the sale of shares in YouGov, the polling company Mr Zahawi co-founded.

Mr Zahawi said HMRC concluded his tax error was ‘careless and not deliberate’.

It’s been reported Mr Zahawi paid a 30% penalty, taking the estimated total tax bill to more than £4.8 million.

What can we learn from the Nadhim Zahawi tax row?

The Zahawi tax affair highlights HMRC’s power to open and continue investigations. It’s pure folly for taxpayers – no matter how high profile – to bury their heads in the sand and hope a tax issue simply goes away.

If HMRC opens an investigation into your personal tax return, it can be daunting, and even confusing. But most of the time the investigation is opened to check whether the correct amount of interest has been declared, or whether a dividend or two has been missed from the numbers. Once it’s understood what the tax body is looking for, matters are swiftly concluded, without too much stress for the taxpayer – or HMRC.

But when tax technical (and hence very complex) areas of law arise, it can become unfathomable to a layperson. It’s likely the taxpayer won’t understand what HMRC is saying, let alone how to answer them.

For this reason, most people in this situation will employ the services of a tax adviser, preferably one who has experience in that specific area of tax.

How can a tax adviser help?

In a tax investigation, it’s the tax adviser’s job to:

  • Interpret what HMRC is asking
  • Understand why they’re asking it
  • And ideally pre-empt where the conversation is going, so matters can be concluded as quickly as possible, and in a way that’s as acceptable as possible for all parties

And while a good adviser will ask their client to sign-off any HMRC correspondence, the reality is the client may not fully understand the intricacies of the process. They’ll rely on their adviser to fight their corner.

What else can we learn?

We don’t know the full story behind the events that led to Mr Sunak sacking Mr Zahawi from the Government.

But what it shows is that if HMRC were to open an investigation into your tax affairs, it’s crucial you recognise the potential seriousness of the matter and that you give it the attention it deserves. Pretending it isn’t happening (whether you’re the Chancellor or not!) isn’t a good way to conduct your affairs.

The best way to deal with HMRC is to understand exactly what the risk areas are. For example, where does it think there’s a potential loss to the Treasury? It’s also important to engage with the tax body in the best way possible to try to conclude the matter.

Remember, HMRC’s staff are people with a job to do. So, the more co-operative you are in reassuring them your tax affairs are generally in order (we’re all capable of making a mistake), the quicker the issue can be dealt with.

HMRC tax enquiries and investigations

It can be stressful if you find yourself facing questions from HMRC about your personal tax return or business tax.

At Churchill Taxation, we have extensive experience of dealing with tax enquiries and investigations on behalf of our clients.

Call our team on 07813 434195 or email: stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation