Nadhim Zahawi may have been eliminated from the Conservative leadership election at the first ballot, but that doesn’t mean he hasn’t benefited from it. The contest’s dominance of the news cycle has kept a story that would otherwise have been a major political scandal away from the front pages.
The story in question is that the Chancellor of the Exchequer, despite being the founder of a very successful business (the polling company YouGov), took no shares in that company when it was set up. Instead, the founder shares that Zahawi would have been expected to own were allocated to a company in an offshore tax haven. Had they been owned by Zahawi in the UK, he would have been liable for millions of pounds in tax when these shares were sold.
Additionally, even as the Ministry of Justice addresses the problem of intimidatory lawsuits, known as Slapps (strategic lawsuits against public participation), Zahawi’s lawyers have written to journalists and a tax expert who publicly questioned YouGov’s share ownership, in a manner that appears designed to prevent the story from being reported.
The expert in question is Dan Neidle, who was for 25 years a tax lawyer at Clifford Chance, one of the ten largest corporate law firms in the world. He now runs Tax Policy Associates, a non-profit which advises government and the press on tax policy.
After Neidle commented publicly on the tax status of Akshata Murty, whose husband, Rishi Sunak, was Zahawi’s predecessor at the Treasury, he was sent a 2017 report by the Guardian on Zahawi’s connections to two companies registered in the British overseas territory of Gibraltar, which charges no capital gains tax. Neidle’s long experience with tax law meant he “was able to join some of the dots” between one of these companies, Balshore Investments, and YouGov, which Zahawi set up with Stephan Shakespeare in 2000.
“I spent two fascinating days immersed in Companies Act filings,” he recalls. What he found was that of the original shares in YouGov, 15 per cent went to the company’s biggest early investor, Neil Copp, who had supplied £287,500 to start the company and was, like Zahawi and Shakespeare, made a director of the company. The rest should have been split evenly between the two founders – but it wasn’t.
Shakespeare did get half the remaining shares (42.5 per cent), for a nominal fee of £7,000. Zahawi would have been expected to take the other 42.5 per cent of these “founder shares”, for the same amount. “But in fact, Balshore did. And the founder, Zahawi, who’s always crowed – I thought justifiably – about his huge success, his entrepreneurial flair in starting YouGov, got no shares in YouGov. It’s inexplicable.”
Neidle raised questions about this structure on the Tax Policy Associates website on 10 July. Zahawi’s response was that he lacked funds at the time and that his father, the Iraqi businessman Hareth Zahawi, provided start-up capital through Balshore.
“I spent more fun days looking into companies’ filings,” Neidle says, looking for evidence of this early funding. He accounted for all the capital from the original share issuance to the point at which the company went public in 2005, and found nothing from Balshore. “I concluded that either I was missing something, or the filings were all wrong – and for 20 years they’d been wrong – or he was lying. I invited him to comment, and heard nothing.”
In the following days, however, Neidle was told that journalists were being briefed with a new, different explanation. The new story was that Zahawi “was so inexperienced an entrepreneur and relied so heavily on his father, that was only fair for his father to get the shares”.
This is more in keeping with YouGov’s early filings, which describe the shares as being allotted in return for the “know-how, expertise and effort” of the people receiving them, but it contradicts Zahawi’s previous explanation and the account he has long given of his own prowess in business. At the point at which YouGov was founded, he had been working for over a decade and had been described as having “the Midas touch” in an interview on ITV’s London Tonight.
“It must be possible that he got lots of help from his father,” says Neidle, “because what father wouldn’t do that? But it seems false, in terms of how entrepreneurs behave, and how fathers behave, that you would give your son a bunch of help and assistance, and then take all the shares that would have gone to him. In business and human terms, it doesn’t add up.”
What can be calculated is the very significant amount of tax for which Zahawi would have been liable had he owned the Balshore shares. This would have included more than £3m in capital gains tax on the sale of the shares in 2017, plus tax on any dividends paid on the shares. Balshore, as a Gibraltan company, was not taxed on this income.
The New Statesman has contacted Nadhim Zahawi to offer him the chance to deny or comment upon this case, but has not received a reply. In a response to a Times report on his connections to Balshore on 9 July, he said: “All of my business interests were properly dealt with and declared from 2000. That includes my family.” The same day, a spokesperson for Zahawi told the Guardian that “all Mr Zahawi’s financial interests have been properly and transparently declared”, and that “his taxes are all fully paid and up to date”.
Not long after he posted questions about Zahawi’s tax affairs, Neidle was contacted by a law firm on behalf of Zahawi. He had already been told that the firm had contacted journalists reporting on the story.
Zahawi’s lawyers began by writing Neidle a “without prejudice” (meaning strictly confidential) letter, despite his informing them that he would not accept such correspondence. They then wrote again, with “a very, very weird letter, which claims it’s not a libel threat, but I think looks a lot like a libel threat, and which also claims to be confidential and says I can’t publish it”.
These tactics are, Neidle says, strongly reminiscent of a Slapp. A Slapp is the threat of costly legal action, often through a libel claim, which the government describes as being used by corrupt elites to silence critics. “There’s few things more Slappy than sending a letter asking someone to retract something, and saying you can’t even tell anyone about the existence of the letter,” says Neidle.
Such tactics can cause journalists to walk away from a story, but it was possibly a misguided strategy against Neidle, who, having taken advice, reacted differently: “I published [the legal letters], and I’m as certain as anything that legally I’m entitled to do that.”
While there is no suggestion that Zahawi has done anything illegal, the question of whether the person at the head of the tax system has avoided paying tax should be answered openly.
It should also be asked to what extent the Prime Minister was aware of this. Zahawi’s business affairs were reportedly investigated by the National Crime Agency in 2020, and “flagged” by HMRC prior to his promotion to Chancellor. HMRC has not denied reports that Zahawi’s tax affairs are currently under investigation. Boris Johnson would obviously have been made aware of these facts before he gave Zahawi the most senior economic authority in government. That he did so anyway speaks volumes about how much Johnson valued his own political survival over the stewardship of the British economy.
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