HMRC chief executive Jim Harra, appearing before the Public Accounts Committee where he was due to discuss tax compliance and the pandemic, was pressed on some of the questions surrounding the tax arrangements for the embattled Tory party chair.
Mr Harra was at pains to stress that he could not comment on individual cases, but did tell MPs that penalties were not applied for what he termed “innocent” tax mistakes.
The row surrounding Mr Zahawi centres on a tax bill over the sale of shares in YouGov, the polling firm Mr Zahawi founded, worth an estimated £27 million which were held by Balshore Investments, a company registered offshore in Gibraltar and linked to Mr Zahawi’s family.
Downing Street has said it did not know last week that Mr Zahawi had paid a reported 30 per cent penalty to HMRC.
Mr Zahawi has said that HMRC concluded there had been a “careless and not deliberate” error in the way the founders’ shares, which he had allocated to his father, had been treated.
He also insisted he is “confident” he has “acted properly throughout”.
On Thursday, Mr Harra told MPs: “Carelessness is a concept in tax law. It can be relevant to how many back years that we can assess, can be relevant to whether someone is liable to a penalty and if so, what penalty they will be liable to for an error in their tax affairs.
“There are no penalties for innocent errors in your tax affairs. So if you take reasonable care, but nevertheless make a mistake, whilst you will be liable for the tax and for interest if it’s paid late, you would not be liable for a penalty.
“But if your error was as a result of carelessness, then legislation says that a penalty could apply in those circumstances.”
He also suggested that there could be certain specific circumstances where he could appear before the committee to discuss some details of a minister’s tax affairs, as he said he would aid the ethics inquiry into Mr Zahawi any way he could.
“It would not be normal for me to account to this committee for a person’s tax affairs, but if there are general issues about how we manage tax and I’ve got the ability to be disclosive that’s obviously something I would take advantage of.
“If we are asked by the independent adviser on ministerial interests to help with the inquiry, we will do so in any way we possibly can,” he said.
Mr Sunak has ordered an investigation by Sir Laurie Magnus, his independent adviser on ministers’ interests, into whether Mr Zahawi broke ministerial rules over the estimated £4.8 million bill he settled with HMRC while he was chancellor.
The Prime Minister, who is hosting an away day with Cabinet colleagues at Chequers, was grilled on the furore by Labour leader Sir Keir Starmer in the Commons on Wednesday.
Mr Sunak told MPs that while it would have been “politically expedient” to sack Mr Zahawi, “due process” meant that the investigation into his tax affairs should be allowed to reach its conclusion.
Downing Street has not set a timeline or indicated the pace of the inquiry, only saying it hoped Sir Laurie could report back “swiftly”.
One senior minister suggested the result of the investigation could be on Mr Sunak’s desk in as little as 10 days, while The Times reported that the independent adviser is expected to expedite the process and report back within three weeks.
Work and Pensions Secretary Mel Stride was asked on ITV’s Peston programme on Wednesday about rumours suggesting the investigation could be done within 10 days, and said it “wouldn’t be untypical” for Sir Laurie to operate in that timeframe.
He added: “I can’t be drawn on an arrangement of which I don’t know all the details.
“But the good news is that we will – in around, it sounds like, 10 days’ time or thereabouts – hear from the ethics adviser, who will report to the Prime Minister, the Prime Minister will then have the facts and be able to make exactly those judgments.”
Mr Sunak acknowledged on Wednesday that he had not been given the full picture about the Tory chairman’s financial matters when he told MPs last week that Mr Zahawi had given a “full” account.
But he insisted that when he entered No 10 and gave Mr Zahawi the job of Minister Without Portfolio “no issues were raised with me”.
Downing Street said that the Prime Minister still has confidence in Nadhim Zahawi, but suggested that the inquiry would take place as quickly as possible.
Asked if Number 10 had asked the independent adviser on ministerial interests to expedite the investigation, a spokesman for the Prime Minister said: “We’ve said we would like it to be concluded as quickly as possible, but as I say, we haven’t put a time constraint on it. It is for him to establish the facts, for him to undertake the work as he sees fit, and then report back to the Prime Minister.”
The spokesman also indicated that the Prime Minister would support Mr Zahawi giving any approval HMRC needed to help the ethics inquiry.
“It’s an independent investigation. So I can’t comment on the process. It follows more broadly the Prime Minister expects participation with it,” the spokesman said.
He pointed reporters to Mr Zahawi’s previous statement on the issue, but said it was a matter for the independent adviser.