Broadcast still of Nadhim Zahawi being interviewed on Sky News: Nadhim Zahawi wears a navy suit, pink tie and glasses, speaking in front of a Union Jack flag during a Sky News interview. A subtitle across the bottom reads: "I don’t benefit from an offshore trust… nor does my wife. We don’t benefit at all from that."

Nadhim Zahawi – why did he say he didn’t benefit from an offshore trust, when we know he did?

Tax AvoidanceZahawi
21 September 2022

4 Comments

I’ve told Zahawi’s lawyers I’m going to accuse him of lying to Kay Burley in his Sky News interview back in July. Amazingly, he’s refusing to respond – no explanation, no defence, nothing. It’s the behaviour of someone with something to hide.

The backstory: Zahawi founded YouGov. But the 42.5% founder stake in the company (that you’d expect him to have) was held by a Gibraltar company – Balshore Investments – held by an offshore trust owned by his parents. More on that here.

Why would anyone do anything so weird? The obvious answer: he put the shares in Balshore to avoid UK tax, but has arrangements behind the scenes to get cash from Balshore.

In his Sky News interview, Zahawi denied that he benefited from Balshore:

Broadcast still of Nadhim Zahawi being interviewed on Sky News: Nadhim Zahawi wears a navy suit, pink tie and glasses, speaking in front of a Union Jack flag during a Sky News interview. A subtitle across the bottom reads: "I don’t benefit from an offshore trust… nor does my wife. We don’t benefit at all from that."

But this document shows a £99k gift from Balshore to Zahawi:

Extract from company financial accounts detailing directors' current accounts for Stephan Shakespeare and Nadhim Zahawi: Directors’ current accounts During the three years and six month period, a number of loans were made to directors in contravention of the provisions of the Companies Act 1985. The balance of these loans at the period ends are set out below. These loans have subsequently been repaid. 2002 £ | 2003 £ | 2004 £ | HY2005 £ To/(From) Director Stephan Shakespeare | (75,233) | – | – | – Nadhim Zahawi | (77,728) | – | – | – (152,961) | – | – | – The maximum balance outstanding during each period was as below: 2002 £ | 2003 £ | 2004 £ | HY2005 £ Stephan Shakespeare | (75,233) | (67,000) | – | 120.000 Nadhim Zahawi | (77,728) | – | 34,546 | 99,146 (152,961) | (67,000) | 34,546 | 219,146 These loans were settled in 2005 by ‘A’, ‘B’ and ‘C’ share dividends. A portion of the ‘A’ dividend was attributable to Balshore Investments Limited, an overseas company, and has been applied to reduce the current account balance of Nadhim Zahawi.

My expectation is that this wasn’t a one-off – the only thing special about the £99k is that Zahawi got sloppy, and so it ended up being publicly disclosed. My bet is that there’s more out there. Possibly £26m more.

So why on earth did Zahawi deny receiving any benefit from the trust? I put this to his lawyers, Osborne Clarke:

Excerpt of a question regarding Nadhim Zahawi's offshore trust arrangements: (a) Mr Zahawi has denied (to the Guardian and in an interview with Sky News) that he has ever benefited from an offshore trust structures. But we know this is false: in 2005, a dividend payable from YouGov to Balshore was diverted to Mr Zahawi – in economic and legal terms this was a gift by an offshore trust to Mr Zahawi, made indirectly via Balshore. Was this a deliberate deception on Mr Zahawi’s part? If not, how would you characterise it?

They – amazingly – refused to defend or explain Zahawi’s false denial:

Email from Osborne Clarke LLP to Dan Neidle dated 24 August 2022: From: [redacted] [redacted]@osborneclarke.com Subject: RE: Nadhim Zahawi Date: 24 August 2022 at 09:47 To: Dan Neidle dan@[redacted] Dear Dan, Our client is grateful that you have sought his comment in advance of publishing further allegations about his tax affairs and asks that you continue to do so if that is your intention. As we have said previously, our client recognises that he is subject to public scrutiny, including in relation to his tax affairs. In that respect, our client's taxes are fully declared and paid in the UK. He therefore does not intend to engage further on these issues via your blog and Twitter feed. Any suggestion that our client has used offshore tax structures in order to obtain a tax advantage would continue to be false. Yours sincerely Osborne Clarke LLP

Zahawi’s assertions that he’s paid all his tax, hasn’t avoided tax etc etc… they all fall flat when we know his central claim that he hasn’t benefited from the trust is false.

At this point it doesn’t look like an accidental omission – in my opinion, it looks like deliberate deception… a lie. If Zahawi told the same lie to HMRC, then this wouldn’t be tax avoidance – in my view it would be tax evasion. Astonishing for a senior cabinet minister.

At this point, I just couldn’t believe that Zahawi and his lawyers were so not-bothered that he’d been caught out in a lie. I put the point to them again… and still they refused to comment:

Email exchange between Osborne Clarke LLP and Dan Neidle dated 12 and 13 September 2022 regarding Nadhim Zahawi: From: [redacted]@osborneclarke.com Subject: Re: Nadhim Zahawi Date: 13 September 2022 at 09:28 To: Dan Neidle dan@[redacted] Dear Dan, We refer to our previous correspondence on behalf of our client. You should not infer anything from our client's desire not to engage with you, including to correct any misrepresentations you have made. Our client’s taxes are fully declared and paid in the UK and any allegation of tax evasion would be false and seriously defamatory. Yours sincerely Osborne Clarke LLP From: Dan Neidle <dan@[redacted]> Sent: Monday, September 12, 2022 11:50 am To: [redacted]@osborneclarke.com> Subject: Re: Nadhim Zahawi [redacted] I note your lack of any substantive response to the points that I’ve made. I note in particular that you have not responded to evidence that two statements made by you/your client were false: the claim that [redacted] and the denial that Mr Zahawi has ever benefited from offshore trust structures. I am intending to say publicly that these statements were false, and that the lack of any subsequent explanation suggests Mr Zahawi knew they were false, and was therefore lying. I will be adding that this pattern of conduct is in my experience more consistent with tax evasion than tax avoidance. Does your client want to make any comment? Kind regards, Dan Neidle Tax Policy Associates Ltd

If Zahawi doesn’t want me to infer things from his failure to explain what looks very much like a lie, then I’m afraid he’s going to be disappointed. Having structures that make no sense, making false statements about your tax affairs, and refusing to explain or defend those statements, is consistent with tax avoidance… but, in my experience and opinion, it’s also consistent with tax evasion.

And so is the Balshore arrangement. The more I think about the structure, the less it looks like tax avoidance. The problem is, there are lots of rules that stop you simply giving your shares to an offshore trust, and then taking money from the trust. HMRC aren’t that dumb. You’ll end up paying the tax. The structure only saves tax if you keep everything hidden from HMRC. But if Zahawi did that, then he wasn’t avoiding tax at all… it was simple tax evasion.

It seems incredible that someone who is now a senior cabinet minister would have acted dishonestly. But there is a longstanding allegation of criminal behaviour by Zahawi – reported in 1999 but only denied in 2020 (and never the subject of a libel claim).

Zahawi is probably hoping everyone has forgotten about his tax affairs, and it will all go away. I haven’t, and it won’t.

More to follow soon.

Footnotes

  1. And it is super-weird. I’ve spoken to dozens of QCsKCs, tax lawyers, accountants, entrepreneurs and others about this. Everyone has the same reaction: that’s really weird. Zahawi’s explanation – that his father was instrumental in the establishment of YouGov, and so it was only natural he got the shares – is bizarre on several levels. ↩︎

  2. See page 36 here ↩︎

  3. Zahawi denies that the £26m profit Balshore made from YouGov was used to fund his £26m of loans. But he also denied receiving any benefit from the trust, and we know what that denial was worth. ↩︎

  4. There are a large number of different views out there on how precisely the structure would get taxed, but literally everyone I’ve spoken to thinks that it would have been taxed; whether under the settlement rules, the usual trust rules, transfer of assets abroad, remuneration rules/loan charge, purposive disregard of Balshore entirely… take your pick ↩︎

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4 responses to “Nadhim Zahawi – why did he say he didn’t benefit from an offshore trust, when we know he did?”

  1. Brian Cain avatar
    Brian Cain

    Is loan in breach of the Companies Act 1985 a criminal offence as well as a civil matter albeit one I doubt anyone in authority would follow up on now.

    Reply
    1. Dan avatar
      Dan

      no, as long as it’s fixed it’s a big nothing. Pretty common for small companies, and not something I’d hold against Zahawi or YouGov.

      Reply
  2. AN avatar
    AN

    Footnote 1 – KCs * !

    Reply
    1. Dan avatar
      Dan

      Doh! The first, but not the last, time I’ll make that mistake.

      Reply

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