No penalties for ‘innocent’ tax errors, says HMRC boss

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 Conservative Party chairman.

Prime Minister Rishi 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.

It came after the Guardian reported that Mr Zahawi had paid a penalty as part of the dispute.

Downing Street subsequently suggested Mr Sunak did not know last week that Mr Zahawi had paid the reportedly 30% penalty to HMRC.

Mr Harra was at pains to stress that he could not comment on individual cases, but did tell MPs that penalties are not applied for what he termed “innocent” tax mistakes.

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.”

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.

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”.

Pressed on the case, Mr Harra also suggested there could be certain specific circumstances in which 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 in 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.

But he also indicated that Mr Zahawi would need to grant his consent as part of such a process due to the confidential nature of an individual’s tax affairs.

Downing Street declined to comment on the remarks, but said Mr Sunak “expects participation” with the inquiry.

The HMRC boss distanced tax officials from any involvement in the appointment of ministers, amid questions about the Cabinet Office process for prospective officeholders.

Mr Harra told MPs that HMRC is not routinely contacted by the Cabinet Office or Downing Street regarding ministerial appointments.

It comes amid speculation that the work of the independent adviser could be completed in a matter of days, or at most a few short weeks.

Downing Street on Thursday did not deny that it has asked Sir Laurie to expedite the process, adding that it would like the inquiry to be “concluded as quickly as possible”.

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, 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.

The Prime Minister told MPs that, while it would have been “politically expedient” to sack Mr Zahawi, “due process” means that the investigation into his tax affairs should be allowed to reach its conclusion.

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”.

Questioned by Public Accounts Committee chairwoman Dame Meg Hillier, Mr Harra admitted it can be frustrating if prominent figures or politicians make false claims about their personal tax affairs.

He said HMRC would not typically intervene to correct the record, but told MPs “as a general rule our default is that we don’t disclose, and it can be a source of frustration for HMRC because people will brief the press or perhaps brief MPs about their tax affairs”.

He added: “We will sometimes feel it’s not the full story, but we have to deal with it on the basis of their disclosure because we’re not in a position to disclose further information.”