Conservative party chairman Nadhim Zahawi is said to have been rejected for a knighthood over concerns about his tax affairs.
The cabinet minister – fighting for his political life after admitting he had to settle a tax dispute with HMRC – was reportedly put forward for the recent New Year’s honours list.
But Whitehall officials blocked the honour after checking with HRMC about Mr Zahawi’s tax affairs in December, according to the Sun on Sunday.
The Independent first revealed last July that Mr Zahawi was being investigated by HMRC over the sale of shares in the polling company YouGov he co-founded 22 years ago.
Tax campaigner Richard Murphy, professor at Sheffield University Management School, told The Independent that HMRC has the power to share concerns about unresolved tax issues of individuals in line for honours or top political roles.
“They have the power to advise the security services, No 10, Cabinet Office about potential risks with appointments,” said Prof Murphy.
Sir Edward Troup, former permanent secretary at HMRC, said the body had a traffic-light system – red, amber and green – to warn the government of the potential risk in giving a knighthood to those who have had tax problems.
He told the BBC’s Radio 4’s Today programme: “They don’t decide whether the honour or the peerage is given but they give the information to those who do make the decision, who form their own judgment.”
The Cabinet Office’s propriety and ethics team raised issues around Mr Zahawi’s tax affairs directly with Boris Johnson before he made him chancellor, according to ITV News.
But the Cabinet Office declined to comment when asked if a “red flag” was raised before his appointment as chancellor, or about Mr Zahawi reportedly being rejected from a knighthood.
An ally of Mr Zahawi said on Monday that the former chancellor “absolutely” will not be quitting in the face of growing pressure over his settlement, estimated to be around £5m.
Labour has called for Mr Zahawi to publish his tax returns for the past five years, and demanded that Rishi Sunak “come clean on what he knew and when” about his minister’s tax affairs.
The Tory chair – who had previously claimed that inquiries by HMRC into his taxes were a “smear” – admitted on Saturday that “questions were being raised about my tax affairs” when he was being appointed chancellor by Mr Johnson in July.
A government source told Sky News Mr Zahawi settled his tax problem with HMRC while he chancellor, but his representatives have yet to confirm the precise timing of the settlement.
Mr Zahawi has not yet confirmed that he paid a fine to resolve a dispute with HMRC, but his spokesman has not denied he paid a penalty. He reportedly paid an estimated £4.8m – including a 30 per cent penalty of around £1m.
Senior Tory MPs told The Independent the under-fire minister’s position as Tory chair is “untenable”, despite the government’s attempts to draw a line under the furore.
“Carelessness with finances wouldn’t have been a recommendation for the post of chancellor, had we known about it,” one ex-cabinet minister said. “It’s hard to see how it can be acceptable for the post of chairman.”
As Labour tried to put pressure on Mr Sunak, No 10 is thought to be ready to argue that the PM only knew that Mr Zahawi paid a penalty to HMRC as part of his settlement when details emerged on Friday.
Labour’s shadow culture secretary Lucy Powell told BBC Radio 4’s Today programme: “His position is totally untenable, and it shouldn’t be a case that we are sitting around waiting for him to resign – the prime minister should be sacking him.”
HMRC chief executive Jim Harra is likely to be grilled by MPs on the resolving of tax disputes with ministers when he appears before the Commons public accounts committee to answer questions about tax compliance on Thursday.
Mr Zahawi’s representatives have been approached for comment.
