I talked about Nadhim Zahawi's tax affairs on Owen Jones' YouTube programme yesterday. The discussion covers the first 22 minutes of the programme:
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Good piece on tax.
I have to agree with you. I have friends that have complicated tax arrangements…. and none of them are careless with these arrangements. Never.
What I have seen are people that “take a view” about the interpretation of tax law… which could subsequently be challenged. It is a risk they choose to take (often at the suggestion of advisers poised to earn large fees) but it is never one that is taken carelessly.
The most likely thing that has happened here is that HMRC sought to use anti-avoidance law, the Transfer of Assets Abroad legislation at Part 13 Chapter 2 of the Income Tax Act 2007, to make Zahawi personally responsible for the chargeable gains realised by the Gibraltar company nominally owned by his father. There must have been some decent evidence available, either that or the prospect of a public dispute with HMRC through the Tax Tribunal and (eventually) the courts, could not be contemplated.
The point about the behaviour being “only” careless, is that, depending on the circumstances, HMRC need only establish the inaccuracy as arising from the least significant behaviour (the two other culpable behaviours being deliberate but not concealed, and deliberate and concealed) in order to charge a penalty. Obviously the evidential bar rises as the level of behaviour worsens. That HMRC may have managed to charge a penalty at all suggests good evidence was available, not just the bald facts of the situation.
Whatever the case, it is utterly unacceptable that a serving Chancellor should be in that sort of dispute with his taxing authority, and even worse that he should have to pay a penalty to it in order to resolve his affairs.
The settlement legislation could have been used as well
We don’t know
I’m so pleased that you Owen has given you a platform.
I so wish the Guardian would engage with you more.
So do I…
But I can work well with the Mirror
Post watch comment:
Zahawi to my mind is not a very nice man in my view.
Of all the emergent Tories back in the days that New Labour was melting down and Cameron was in the ascendant, he was one I took an instant dislike to. He is very easy to bait and does not cover his spots when he does not like what he hears.
The sort of Tory you would not like to meet in a dark alley unless you were tooled up with a decent rating in karate. I think he is a bit thug to be honest.
Great contribution Richard. I wonder who Zahawi sold his Gov.uk shares to? I wonder if they had any Russian connections!!!
Should Gov.uk shares be available on the market? I’m not so sure about that.
Whether it is his heated stables, business connections or tax affairs, Zahawi has form and a track record. Everything about him stinks and it does not matter whether it is perception or reality.
In a governments with any decent standards he would be nowhere near any ministerial post.
Even including the penalty, if the reports can be believed, Zahawi has paid about £5m of tax on about £20m of gains. Quite a good result, you might say. Someone earning £20m of income would pay almost £9m of income (and that leaves out national insurance).
Have commented a couple of times now on OJs channel that he should interview you for an hour on government finance and austerity !
Thanks!
You never know
As a compliance officer in HMRC, this is part of my work every day, so I think I can make a useful contribution to this issue. There are two types of taxpayer behaviour which HMRC actually charge a penalty for, careless and deliberate. The distinction is important, because an inaccuaracy on a return judged as deliberate can be investigated going back over 4 years, careless cannot, which can obviously massively increase the amount of tax assessed.
A deliberate penalty can also be charged as a much higher rate than careless one; theoretically, if there is no co-operation, as much as 100% of the tax itself. If you to the http://www.gov.uk website and search for ‘HMRC compliance checks factsheets’ you’ll get onto a web page with a list of factsheets. Look at the one called CC/FS7a, snappily titled ‘Penalties for inaccuracies in returns and documents’. Pages 3 and 4 are the most relevant, since they tell you how HMRC calculates the percentage amount that the penalty will be.
We’re being told that the penalty was a careless one, and was 30% of the tax due. As you’ll realise if you do a very quick check of CC/FS7a 30% is the absolute maximum you can be charged for a careless penalty. It would actually mean that NO reduction (called abatement within HMRC) has been allowed for Telling, Helping or Giving, which is extremely unusual. In my experience, even a pretty unhelpful taxpayer gets some kind of abatement, which would take the penalty to less than 30%.
It’s far more likely that the penalty was deliberate, albeit unprompted, and had co-operation from Zahawi, or his tax agent, because they realised he’d been caught out so decided to fully co-operate and disclose the information early on to reduce the size of the penalty.
That’s NOT a careless penalty.
That is my opinion as well
And that of most tax advisers
Thanks Richard, its nice to see my suspicions corroborated. So Zahawi is lying when he says it was careless. No surprise there for me; this government now seems to be composed of people who lie as easily as they breathe.
Given the way the CS has been treated by the tories ever since 2010 it would serve him right if the penalty was leaked and found to be deliberate. He needs to go now
And if it is indeed careless, Zahawi should not be afraid of handing the relevant documdents over to the press to back his story up.
I called for that on the bbc at 5.10pm
I guess “CC/FS” is “compliance check/factsheet”. There is a list here: https://www.gov.uk/government/collections/hm-revenue-and-customs-compliance-checks-factsheets
There is also CC/FS17 which sets out the larger potential penalties for non-compliance with an offshore component, such as holding shares through a Gibraltar company.
It is possible that Zahawi was charged the maximum 30% penalty for an onshore careless inaccuracy (prompted or unprompted) with no discounts for quality of disclosure and cooperation (that is “telling, helping, giving access”).
But maybe it was an increased offshore penalty for careless inaccuracy of up to 45% (Gibraltar is a Category 2 territory) but mitigated by a third back to 30%.
Perhaps he should just publish the settlement contract so we can see the basis on which this penalty was paid.
I suspect he also had to promise there were no other inaccuracies in his tax affairs. I wonder if any other skeletons were shaken loose.
I discussed all this on the BBC news channel at 5.10pm
Excellent work SoTD – well said.
Thanks PSR, I am speaking from my capacity as a VAT (so not CGT of wealthy people like Zahawi) compliance officer who deals with evasion with SME companies, and a 30% careless penalty would be very unusual.
Perhaps Andrew’s posting re offshore stuff, with which I am not familiar, is more on the mark. Whatever, if he’s got nothing to hide publish the paperwork from HMRC and have done with it.
As ever, Richard is doing invaluable work on this, I’m glad to hear you were on the Beeb making all these points Richard.
What the hell was he doing as chancellor if he had this tax issue in the background?
He should never have accepted the job
Zahawi should not have accepted the job, but more importantly, given the warnings that I understand were given internally about ongoing investigations, he should not have been offered it, and might not have been if the Prime Minister had been anyone other than Johnson in the last moments of his regime, desperately looking for a way to get through another day. There will eventually to be a very very long book written about Johnson’s manifest personality flaws and the enormous quantity of damage he has caused in every public office he has occupied. And he is still an MP!
Richard says “He should never have accepted the job”, but then he’s part of an elite who imagine there are no rules; rules are for the lesser people and if any of them try to expose a transgression of the rules, simply threaten to sue them for everything they have (cf Banks v Cadwalladr). If they win the case, appeal and force them back round the merry-go-round at ever-increasing cost. Simples!
Vaulting ambition coupled with immense personal wealth and a lack of scruples will ensure that rich chancers will continue to be offered high office as long as there is a PM who thinks he/she is above the rules and we have a constitution and legal framework that is ineffectual in preventing corrupt behaviour.
This is my non-expert assessment.
Placing the shares in an offshore trust looked suspicously like tax evasion,
However, provided it did not channel money back to Zahawi, he could not be shown to be the beneficial owner.
The mistake was not hiding completely transfer of money from the trust back to Zahawi.
This mistake was quite correctly described as careless and not deliberate.
It showed that Zahawi was the beneficial owner, and liable to capital gains tax.
What I don’t know is whether it showed that the whole scheme was tax evasion, or merely tax avoidance.
It was nit evasion, I think
Personally, I think this avoidance
‘He should never have accepted the job’.
Ha! Indeed. To me he is a lesser son of better people maybe. An immigrant who made good but had his morals and principles twisted by money and political affiliations that can only be described as toxic and anti-social (fascist).
I realised as a young man that ‘wrong’uns’ most often look exactly what they are. Remember he initially said he was being smeared by his accusers – his first lie. Then he said he was careless but this has been blown away by a poster here who actually works for HMRC.
As long as the corrupt only get a slap on the wrist the corruption will continue unabated.
As the poster in question Mr Crawford, thank you for your kind words. To be fair to Zahawi (something he’s unlikely ever to be to anyone), my experience is with the VAT affairs of SME’s, not the CGT affairs of HNW individuals like him.
So, maybe, following the taxman’s adage that the devil is in the detail, it really is a careless not deliberate penalty. I will check our leaflet CC/FS17 mentioned above by Andrew if I have the time to see if sheds light on the matter.
But as I said, I find it virtually inconceivable that a careless penalty would be 30%. It is far more likely to be a deliberate penalty of say 50% initially, reduced (abated in taxman speak) t0 30% for a substantial level of co-operation from the taxpayer.
Never mind about appointing an ethics advisor to supposedly root out the truth. If Zahawi’s offence was careless, he should publish the HMRC paperwork and clear himself.
I agree with you: a careless penalty of 30% requires non-cooperation, and that is unlikely
And misallocating shares can never be careless, anyway. I see no way it can be
Peter Oborne has assembled a (very long) list of Johnson’s lies. There is another list to be assembled of the many examples of corrupt behaviour or breaches of what would in the past have been regarded as the ministerial code by ministers in a series of Tory governments. Mone and PPE, Sharp and Johnson’s money, Zahari’s tax, Shapps and Braverman’s bullying are just the the most recent. In every case there is denial, obfuscation, evasion and just plain lying.
Any sense of standards, ethics or morals are long gone. Zahari is no different and no worse than the rest of them. It’s too easy to forget how far we have sunk and what has become the norm.
This is one of my main concerns about the last seven and half years since the Brexit referendum in May 2016, and the last three and a half year years since Johnson came to power in July 2019.
I am not expecting politicians to be paragons of virtue, but the very basic standards – selflessness, integrity, objectivity, accountability, openness, honesty, leadership – just don’t seem to apply as they should. Any sense of standards in public life seems to have been abandoned. Corruption is corrosive, and the body politic is very sick.
They are not all the same, but it is not just one or two bad apples, and the bad drives out the good.
Some years ago (Coalition days) I had the Houses of Parliament as a client so saw things from the inside, working with the staff. A fascinating experience that taught me a lot and got me more interested in politics. The staff there really do know who the bad ‘uns are…
As a result I came away defensive of most MPs as having a tough job for which they got little thanks, mediocre pay, destructive to family life but were mostly decent people. An unfashionable argument to make. I still think that but it’s become ever harder to defend them as the proportion of bad apples, especially in the Tories, has steadily increased.
A bit like the Met really…
A give-away characterstic of Tory tactics is obfuscation: if true, accurate figures are not made available incompetence is harder to pinpoint and widespread malfeasance and corruption are enabled. The lack of accurate data is a hallmark of 21st century conservatism, but collection of accurate data has never been easier. For example VAT in Scotland is devolved but entirely based on estimates, when a simple ‘S’ suffix to the subject’s VAT number would enable accurate data to be collected – the ‘S’ suffix works for Income Tax so why not VAT?
Crucial health data is also withheld or distorted in England & Wales, making accurate media reporting and comparison with other nations’ data impossible. This damning analysis turned up today:
https://talkingupscotlandtwo.com/2023/01/24/ae-waiting-times-how-nhs-england-and-the-bbc-collude-in-a-fundamentally-dishonest-way-of-reporting/
The rot is everywhere.
S would not prove the VAT destination Ken, and since this is a destination tax I am not sure on this occasion that I agree with you
In response to Richard’s post at 1:17pm, if all businesses trading in Scotland had an S appended to their existing UK VAT numbers and HMRC data systems for VAT were amended to classify and analyse the S numbers separately (as they’ve already done for Income Tax), figures for total VAT raised in Scotland would be available. Collection of VAT could still be done through existing HMRC channels and the value transferred to Revenue Scotland through simple book-keeping. From a systems perspective, I can’t see any huge problem: it has the huge benefit of clarity and audit trail and would remove the complications to Scottish Gov budgeting processes caused by retrospective adjustments (sometimes over a number of years) to correct erroneous estimates.
But you would need to split businesses like supermarkets so they had different registration for Scottish and other outlets, for example, and account for VAT between them
Is that viable right now?
I really don’t like having to watch videos (as opposed to something I can read), but this one was well worth it. Excellent dialogue with OJ and your clinical dissection of the underlying dynamics of the Zahawi tax exploit was a joy to hear. Thank you.
Thanks
I have to say I have, as a former tax inspector (with plenty of experience of dealing with avoidance) come round to the conclusion that the 30% penalty was most likely a fudge arrived at without prejudice, to enable Zahawi to say it was only careless and not anything more heinous. Penalties not the norm for avoidance (the ability to wheel out a positive counsel’s opinion, being a common situation) so any penalty obtained by HMRC is likely to have been seen as a result by those working the case. The really interesting question here though is what part of HMRC Mr Zahawi’s advisors negotiated this settlement with.
Probably doesn’t matter as I would be astonished if he doesn’t suffer a large drop in salary by the end of the week. If that isn’t the case, it just emphasises what others have said here – the ruling party just doesn’t believe the rules apply to it.
The best way to understand the difference between careless and deliberate is “Should and Must”. Deliberate error, he must have known, careless error, he should have known.
The other point, worth making, is that it is almost impossible that he would have received a 30% penalty. Penalty range for a careless error is 0-30%. The point on that range is determined by the tax payers behaviours, judged under the headings “telling”, “helping” & “giving access”. Each of those is assessed under the categories of timing nature and extent.
So the more he told them and the earlier he did it the bigger reduction. Making a voluntary disclosure of an error you found yourself will often see the penalty reduced to nil.
Because HMRC detected the error he wouldn’t get the full deduction, but I can see the penalty as being anywhere between 5% and 15%, depending how much he and the advisors cooperated.
That may however be all completely ignorable, it is still possible to have contracted settlement, where the taxpayer and the department agree a global settlement amount, not broken down into tax penalty and interest. That could be what the £5million being quoted was.