CRISIS-hit Tory Nadhim Zahawi was prevented from getting a knighthood after Whitehall staff raised questions about his tax affairs.
The bombshell revelation heaps fresh pressure on the party chairman, who is battling for his political career.
Multi-millionaire Mr Zahawi, 55, was nominated for the gong in the recent New Year’s Honours List.
But the former Chancellor did not appear on the list of recipients after experts at HMRC were contacted by the Cabinet Office, which oversees the vetting of honours.
Questions were raised over his tax affairs during the discussions, which took place in December.
A source told The Sun on Sunday: “Nadhim had been put forward for a knighthood. As part of the normal due diligence, Cabinet officials contacted HMRC in December. Nadhim subsequently did not appear on the list in the New Year.”
It comes a week after The Sun on Sunday exclusively revealed that after months of scrutiny Mr Zahawi had agreed to pay millions of pounds to settle his tax affairs.
Yesterday, Mr Zahawi finally issued a statement. He admitted for the first time he had paid up to settle the tax row.
But he insisted that any mistakes were a “careless and not deliberate error”.
Yesterday, it was reported that Mr Zahawi had agreed to pay £5million relating to a dispute over shares in polling firm YouGov.
The Guardian claimed that as part of the settlement, Mr Zahawi had handed over £3.7million in unpaid capital gains tax and a £1.1million penalty.
HMRC also applied interest, bringing the likely total to over £5million.
Mr Zahawi, a father of three who has amassed a personal fortune of up to £100million, has faced months of pressure over profits from the sale of YouGov, the polling firm he founded.
He has faced questions over whether he avoided tax by using an offshore company to hold shares in YouGov. A family trust, Gibraltar-registered Balshore Investments, held a stake worth over £20million but sold up by 2018.
Mr Zahawi has said he was not a beneficiary of the trust, but records show money he owed to YouGov was partly repaid from Balshore dividends.
Allegations first surfaced last July, after he was made Chancellor in the dying days of the Boris Johnson administration.
He was made Tory party chairman by PM Rishi Sunak last October, despite the row.
Yesterday afternoon, Mr Zahawi issued his fullest statement yet to “address some of the confusion” around his finances.
He denied any intentional wrongdoing.
He said: “Twenty-two years ago I co-founded YouGov. When we set it up, I didn’t have the money or the expertise to go it alone. So I asked my father to help. In the process, he took founder shares in the business in exchange for some capital and his invaluable guidance. Twenty one years later, when I was being appointed Chancellor, questions were being raised about my tax affairs. I discussed this with the Cabinet Office at the time.
“Following discussions with HMRC, they agreed my father was entitled to founder shares in YouGov, though they disagreed about the exact allocation. They concluded that this was a ‘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.”
He added: “Additionally, HMRC agreed with my accountants I have never set up an offshore structure, including Balshore Investments, and I am not the beneficiary of Balshore Investments.
"This matter was resolved prior to my appointments as Chancellor of the Duchy of Lancaster and subsequently chairman of the party I love so much. When I was appointed by the Prime Minister, all my tax affairs were up to date.”
The PM had said Mr Zahawi “addressed the matter in full”.
HMRC said: “We cannot comment on identifiable taxpayers.”
A source close to former vaccines minister Mr Zahawi said: “Nadhim is very proud to have run the UK’s world-beating vaccine rollout, and reopened schools during Omicron.
“And it was the honour of his life to coordinate Her Majesty’s funeral when in the Cabinet Office. He did those things to serve the country he loves and that is reward enough.”
Cabinet Office sources said the honours nomination process is confidential and they do not comment on individual cases.
The revelation is a fresh blow for Mr Sunak, who is already facing mounting pressure from his backbenches over tax cuts.
Labour chairwoman Anneliese Dodds said: “If the Government don’t think Nadhim Zahawi is fit to receive a knighthood, how can they say he’s fit to remain as a minister?”
By Kate Ferguson
NADHIM Zahawi’s tax returns matter.
But after months of reports, leaks and questions being raised, they are still a riddle. There are a string of unanswered questions.
Was Mr Zahawi trying to avoid paying tax when he gave his father founder shares when he set up YouGov in 2000? What help did his dad give to deserve the shares?
Did Mr Zahawi have any inkling he wasn’t paying the correct amount of tax before? Was he ever under criminal investigation — as some reports say?
Are reports that he paid the taxman £1.1m penalty correct? And what did he tell PM Rishi Sunak — and before him Liz Truss and Boris Johnson?
Now we learn the Cabinet Office — the very government department Mr Zahawi ran until just a couple of months ago — ditched him from the honours list after concerns were raised by HMRC.
Mr Zahawi was Chancellor until just a few months ago running the Treasury — the very department ultimately in charge of HMRC. But now it appears he was in his own tax dispute with HMRC. That is deeply uncomfortable.
If Mr Zahawi doesn’t see the need to come clean on his taxes then why would anyone else?
By keeping it murky he merely hands a gift to Labour, who are only too happy to seize on the row for their own political point scoring.
Times are tough. Taxes are high. And millions of Brits are under the kosh. They deserve honesty from their politicians.
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