The head of HM Revenue and Customs has told MPs there are “no penalties for innocent errors” in relation to tax affairs, raising further questions about the circumstances that led to the Conservative party chair, Nadhim Zahawi, being fined by the tax office.
HMRC’s chief executive, Jim Harra, said his department did not penalise taxpayers who were deemed to have taken “reasonable care”.
“There are no penalties for innocent errors in your tax affairs,” he told the public accounts committee on Thursday. “If you take reasonable care, but nevertheless make a mistake, whilst you will be liable for the tax, and for interest … 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 testimony adds to pressure on the former chancellor to explain what led to him receiving an HMRC penalty before his appointment as the Tory party chair on 25 October 2022. Zahawi is understood to have paid an estimated total of £5m, which included interest, about £3.7m in tax owed and a penalty of 30%, according to Guardian sources.
Zahawi said last week that the error was “careless and not deliberate”, but has not provided further details.
When asked about how the term “careless” should be interpreted by the public, 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.”
While Harra made clear he was not at liberty to speak directly about an individual’s tax affairs because of confidentiality rules, he said he would most likely be able to do so if he had permission from Zahawi himself.
“Normally, if a taxpayer gives us consent to speak to someone about their tax affairs, then that’s what we would do,” Harra said. He added that while it was unusual for HMRC to be asked about an individual’s tax issues at a parliamentary committee, were he to have “the ability to be ‘disclosive’, then that’s obviously something I would take advantage of”.
HMRC would assist with any relevant ethics inquiries “in any way we possibly can”, Harra told MPs, but added that it did not have a duty to correct any potentially false statements that may be made to the public or media by the individual in question.
Questions have also been raised regarding whether Rishi Sunak was aware of Zahawi having paid a tax penalty before appointing him as party chair and minister without portfolio.
But while the tax authority has agreed to flag potential tax issues in regards to individuals being considered for honours or peerages, Harra said there were no similar memorandums of understanding in place with the Cabinet Office regarding ministerial appointments.
“The process for appointing ministers is handled in Cabinet Office. They have got their own processes … there’s no part of that that involves routine engaging with HMRC or routine disclosure of information,” he said.
Asked about Harra’s comment on “innocent errors”, Sunak’s deputy spokesperson said: “I’ll point you to the words of Jim Harra himself. I think he was speaking more generally about tax policy. But it’s now a matter for the independent adviser.”
Questioned about whether Zahawi would be expected to hand over details of his tax affairs, the spokesperson added: “Again, it’s an independent investigation, so I can’t comment on the process. More broadly, the prime minister expects participation with it.”
He declined to comment on reports that the prime minister’s ethics adviser, Laurie Magnus, could complete the report within 10 days, saying only that No 10 had asked for the process to be completed “as quickly as possible”.
