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Chancellor legal letters reject tax ‘smears’

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Nadhim Zahawi has been accused of “dodging scrutiny” by Labour’s deputy leader after the Chancellor sent legal letters to a former tax lawyer investigating his tax affairs.

27th Jul 2022
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The Chancellor of the Exchequer has been under pressure to answer questions from the founder of not-for-profit think tank Tax Policy Associates about the use of an offshore trust when he set up YouGov. Rather than answers, Dan Neidle, a former tax partner at law firm Clifford Chance, received what he called “threatening letters, drafted by expensive lawyers”.

The Chancellor’s tax affairs have now become a political issue. Angela Rayner, the deputy leader of the Labour Party, has questioned Zahawi’s refusal to give direct answers about his tax affairs. “Sending legal letters to those asking questions about his financial affairs is not only a bad look, it suggests the Chancellor has something to hide,” Rayner wrote on Twitter. “Nadhim Zahawi could settle this now by coming clean with the British people. Why is he dodging scrutiny?”

Tax questions

Zahawi has faced questions about how his shareholding in the market research company ended up with Balshore, a Gibraltar-based company owned by an offshore trust controlled by his parents. 

Neidle has examined Zahawi’s explanation that his father provided startup capital. The Chancellor maintains that his father was allocated shares through his Balshore investments, as recognition of the £7,000 capital he contributed and the informal wider support he provided in the early days of YouGov. Zahawi said this advice included ideas, business support and know-how. 

But Neidle pointed out in his blog that at the same time Balshore received 42.5% in shares, another investor paid £285,000 for 15% of shares.

Neidle said that due to the success of the company, the shares held by Balshore Investments would have sold for at least £27m. Neidle has calculated that if Zahawi had held the shares directly, he would have paid around £3.7m in capital gains tax. 

Following calls for the Chancellor to answer questions about his tax affairs, Neidle reported on Saturday that he had received “threatening” letters from Zahawi’s lawyers, Osborne Clarke.   

Private and confidential

He first received correspondence from the law firm which advised Neidle to seek advice from a libel lawyer and to retract his allegations. Neidle didn’t retract his allegations. This was followed up with a letter from the law firm, headed as “private and confidential” and “not for publication”, asking Neidle to reconsider the allegations of dishonesty against Zahawi. 

Neidle published all the correspondence through the Tax Policy Associates website and social media and since receiving the legal letters has asked the Solicitors Regulation Authority (SRA) to clamp down on the use of strategic lawsuits against public participation (SLAPP) and that SRA guidance “specifically caution against assertions of confidentiality or ‘without prejudice’ which do not have a firm legal basis”.

Writing in his blog, Neidle said, “the public has a right to know if the Chancellor of the Exchequer – the person responsible for HMRC and tax – created a tax avoidance scheme to avoid £4m of his personal tax.” 

He added, “And the public definitely has a right to know if the Chancellor sends letters to prevent the media and others from writing about his tax avoidance.”

Zahawi has denied any allegations of tax avoidance or tax evasion. 

Zahawi denies ‘smears’

It had previously been reported that HMRC had launched an investigation into Zahawi. This would attract even more questions now that Zahawi runs the Treasury and HMRC comes under his control. However, Zahawi released a statement while he was in the running for the Tory leadership, where he refuted the “smears”. He said that he “wasn’t aware” of any investigation from the national crime agency and HMRC. 

He said, “There have been claims that I benefit from an offshore trust. Again, let me be clear, I do not benefit from an offshore trust. Nor does my wife. I have never been a nom-dom, my wife has never been non-dom, she’s never used offshore status, or a company to avoid tax. I have never used offshore companies or services firms based in tax havens for the purchase of property or properties in the UK.” 

Zahawi claimed that if he had become prime minister he would have committed to publishing his tax returns annually.

Replies (13)

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By Hugo Fair
27th Jul 2022 09:30

Interesting if not wholly surprising, but we do seem to be entering a culture where legality is subservient to public opinion.
I've no idea of the facts of the alleged 'case', but what do you think tax planners do?

And to say that "Neidle has cross-examined Zahawi’s explanation .." is a tad naughty as it gives the impression that this occurred in a court of law!

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By Justin Bryant
27th Jul 2022 10:30

DN is not that clever re tax. An example is here where he thinks the minimum period to avoid CGT is 5 complete (tax) years of non-UK residence, whereas in practice it's actually 6*.

https://www.taxpolicy.org.uk/2022/05/22/how-to-avoid-cgt/

Also, he's a bit of a hypocrite banging on about SDLT avoidance here, when CC advised on PB's SDLT scheme that failed in SC.

https://www.taxpolicy.org.uk/2022/05/25/how-to-avoid-sdlt/

Otherwise, he's more or less correct about tax stuff (I assume he's angling to be a labour politician) and at least he knows a bit more than RM (who's also a bit of a hypocrite). See also:

https://www.accountingweb.co.uk/any-answers/interesting-re-nz

* in fairness it's a common error. See: https://www.accountingweb.co.uk/any-answers/day-or-rather-midnight-calai...

The 6 year minimum was explained by a specialist tax law firm in a link in this link which is now broken: https://www.taxationweb.co.uk/forum/viewtopic.php?f=3&t=57629

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Replying to Justin Bryant:
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By adjadj
27th Jul 2022 10:08

DN; CC; PB; RM
The use of initials make you post difficult to understand so many will choose it ignore it. I lost the will to decode who you were referring to when I got to CC!

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Replying to adjadj:
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By Justin Bryant
27th Jul 2022 10:24

I'm sure DN knows. PB = Project Blue. RM = Richard Murphy. SC = Supreme Court. CC= Clifford Chance. (I assume you know what SDLT and CGT are.)

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Replying to adjadj:
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By Justin Bryant
27th Jul 2022 11:11

Also, if you copy & paste "CC advised on PB's SDLT scheme that failed in SC" into an internet search engine, it all comes up at or near the top of the 1st page, so it's hardly cryptic.

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Replying to Justin Bryant:
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By AndyC555
28th Jul 2022 16:51

"at least he knows a bit more than RM"

Who doesn't?

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By Paul Crowley
27th Jul 2022 13:33

I gave the shares to my dad so not my problem
I recommend this particular scheme to the House
This sort of stuff makes a couple of drinks and unproven allegations look really trivial

When will we ever get a Tory chancellor come to the job with clean tax hands?
Three of them one straight after the other

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Head of woman
By Rebecca Cave
28th Jul 2022 10:41

There are nine outstanding questions about this affair :
https://www.taxpolicy.org.uk/2022/07/27/nine/

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Replying to Rebecca Cave:
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By Justin Bryant
28th Jul 2022 13:18

DN should be working for HMRC on a commission deal I think*.

Gibraltar was (probably accidentally) a poor choice due to no EU law freedoms protections e.g. a Cyprus trust company (or even Channel Islands) structure would probably have been OK there re s720 motive defence etc., so in fairness to NZ that is arguably more bad luck (or bad advice to use Gibraltar) than tax avoidance etc.

*I have often tried to help HMRC myself (for free) here re dodgy looking tax avoidance in the public domain. See for example: https://www.accountingweb.co.uk/any-answers/dodgy-looking-gdpr-provision...

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Replying to Rebecca Cave:
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By Paul Crowley
28th Jul 2022 13:05

Enjoyed that read
If a Chancellor gets this stuff wrong then surely we should not trust him with the UK chequebook
New PM needs to assess the current cabinet capabilities

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By AndyC555
28th Jul 2022 16:49

As the marvellously named American Judge Learned Hand said in 1947

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands. Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."

The problem with morals is that everyone's are different.

Too much pious posturing if you ask me. If there was a box you could tick on the tax return which said "if you want your taxes to be £0 this tax year, tick here" how many people could honestly say they wouldn't tick it?

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By Paul Crowley
30th Jul 2022 00:12

This really is about yesterday's man
Threats on 'I will sue' tend to be the cries of the pathetic Karen from Reddit blogs
How can this Ken be taken seriously?

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