A relic from Boris Johnson's days of prime ministership is causing headaches for the UK government as a murky tax trail comes to light.
The chairman of the governing Conservative Party Nadhim Zahawi is under investigation following revelations he paid a seven-figure penalty over an issue of unpaid tax during his time as chancellor — the UK's treasurer — under the Johnson leadership.
Mr Zahawi, who has held a number of high-ranking positions during his time in politics, has remained tight-lipped over the affair, however calls for him to resign are now being extended to current Prime Minister Rishi Sunak for what is perceived as inaction in disciplining Mr Zahawi.
On Monday, Mr Sunak announced an investigation into Mr Zahawi's tax affairs, saying there were "questions that need answering".
Here's what we know about Mr Zahawi's self-professed "careless" tax trail.
An offshore company and family trust
While details of Mr Zahawi's financial movements at the time are yet to be formally published, multiple investigations by various UK media outlets paint part of the picture.
The case relates to Mr Zahawi's co-founding of opinion polling firm YouGov in 2000, prior to entering politics.
He said he had asked his father to help finance and support the firm's launch in exchange for founders shares – the shares automatically owned by the founder of a company.
These shares Mr Zahawi gave to his father were sent to an offshore company called Balshore Investments.
Balshore Investments was based in Gibraltar and held by a trust controlled by Mr Zahawi's parents.
The shares sent to Balshore Investments were eventually sold for about 27 million pounds ($47.73 million).
An analysis by tax policy website Tax Policy Associates estimated that as founder, Mr Zahawi should have paid 3.7 million pounds ($6.54 million) based on the capital gains tax.
Investigations out in the open
In July 2022, when Zahawi was appointed chancellor by Mr Johnson, UK media reported that his finances were under investigation by the National Crime Agency.
As chancellor, the UK's tax office HMRC came under Mr Zahawi's professional jurisdiction.
The Guardian reported that tax authorities had imposed a 30 per cent penalty on top of the owed tax, bringing the total to around 5 million pounds ($8.8 million).
According to the government's website, a penalty of 30 per cent could be paid when there was "lack of reasonable care", or where the error is considered to be deliberate.
Media reports allege the bill was settled when Zahawi was chancellor between July and September, during the final weeks of former prime minister Boris Johnson's tenure.
Last week, a representative of Mr Zahawi released a statement denying he had profited from Balshore Investments.
"Neither he nor his direct family are beneficiaries of Balshore Investments or any trust associated with it," the statement said.
This statement raised suspicions as to why Mr Zahawi would pay the multi-million pound settlement if he has no links to the company.
A 'careless and not deliberate error'
Over the weekend, in response to increasing pressure to respond to the allegations, Mr Zahawi offered a statement.
Mr Zahawi confirmed his father "took founder shares in the business in exchange for some capital and his invaluable guidance", and claimed this had been confirmed as acceptable by HMRC.
The issue, according to Mr Zahawi, is over a discrepancy in the number of shares held by his father's trust on legal documents.
Mr Zahawi said HMRC "disagreed about the exact allocation" of these shares, but the outcome of the investigation concluded the discrepancy was "careless and not deliberate error."
"So that I could focus on my life as a public servant, I chose to settle the matter and pay what they said was due, which was the right thing to do," Mr Zahawi said in the statement.
Ethics investigation underway
Prime Minister Rishi Sunak announced on Monday he had asked his independent ethics adviser to look into Mr Zahawi's tax case because there were "questions that need answering".
Mr Sunak said he wanted the ethics adviser to make sure Mr Zahawi had complied with rules guiding ministers.
"Integrity and accountability is really important to me … There are questions that need answering and that is why I have asked our independent adviser to get to the bottom of everything," Mr Sunak said.
He said he was pleased that Mr Zahawi had agreed to fully cooperate with the investigation, adding the charges were made before his time as prime minister and he had received the go-ahead to appoint him to government.
The opposition Labour party met the announcement with calls for Mr Sunak to sack Mr Zahawi.
"Everybody knows it's wrong. He clearly isn't going to resign and so the prime minister needs to show some leadership," Labour leader Keir Starmer said..
"This is a test of the prime minister. He promised us, his first words were integrity and accountability. Well, if those words mean anything, the prime minister should sack him, and sack him today."
The story is fuel for opponents who accuse Mr Sunak — a former investment banker who is married to the daughter of an Indian billionaire — of leading a government of the wealthy that is out of touch with the struggles of ordinary people.
"In the middle of the biggest cost-of-living crisis in a generation, the public will rightly be astonished that anyone could claim that failing to pay millions of pounds worth of tax is a simple matter of 'carelessness'", Labour Party chairwoman Anneliese Dodds said.
ABC/Wires
