POOR MR ZAHAWI

 

BLOG 241

POOR MR ZAHAWI

 

I feel sorry for Mr Zahawi.  That is probably the first time I’ve ever said that about a politician.  I feel sorry for him because I cannot understand what he did wrong.

 

The press wanted him sacked because he paid a penalty to HMRC.  More of that later.  But that is not why he was sacked – at least, it is not the reason that Rishi Sunak gave for wielding the hatchet.  He was sacked apparently for having broken the Ministerial Code in not having told Rishi Sunak when he became Minister without Portfolio that he was under investigation by HMRC.  In 2023, he was sacked for not doing something that he was supposed to have done when he was appointed a Minister by Theresa May in 2018 and again when he was appointed a Minister by Boris Johnson in 2021, and again when he was appointed Chancellor by Liz Truss in September 2022 and yet again when he was appointed Minister without Portfolio in October 2022.  Rishi Sunak, we are told, as a bright former hedge fund manager, had no idea in October 2022 that Mr Zahawi, who before becoming an MP had a high-profile business career, might have issues with HMRC.  (Well at least we now know that Mr Sunak is so naïve that he could not have guessed that most businessmen are going to have issues with HMRC at some time in their careers).  At the same time as this sin came to Mr Sunak’s knowledge the mob were baying for Mr Zahawi’s head, not for breaking the Ministerial Code but for paying a penalty to HMRC.  What a massive coincidence that Sunak could sack him for a breach of the Ministerial Code while defying the mob and not have to consider Mr Zahawi’s tax affairs.

 

The reason I feel sorry is that the mob was an ill-informed mob.  I know nothing about the tax dispute, but what Mr Zahawi has said is that when he was offered the Chancellorship, he told his accountant to settle his HMRC enquiry by paying HMRC what they were demanding.  He believed that he either had to do that or to tell HMRC that as he was becoming Chancellor, he could not deal with their enquiries until after his term of office was ended, and felt that paying the tax was the most sensible option.

 

So, what about the penalty?  If you do a deal with HMRC, they almost always demand some sort of a penalty.  The penalty sought in this case was apparently 30% of the tax.  This is a penalty for failure to take reasonable care.  30% is a ballpark figure for what I would have expected HMRC to demand.  Of course, like most accountants, I would have tried to negotiate that down and/or would have claimed that the client either had indeed taken reasonable care or had a reasonable excuse for the default which, if I could demonstrate it, would eliminate the penalty entirely.  But Mr Zahawi did not want to negotiate; his sole desire was to close off the issue and get on with running the country’s finances.  Accordingly, I cannot see anything sinister in his having accepted a penalty.

 

It is however sad if the press know so little about the workings of the tax system that they were seemingly not aware that accepting a penalty is a fairly routine thing for taxpayers to do.

 

ROBERT MAAS