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

There are no penalties for “innocent” tax errors, the boss of HM Revenue & Customs (HMRC) has said.

Jim Harra’s comments to MPs come amid pressure on Nadhim Zahawi after it emerged he paid a penalty to the tax authority.

The Tory chairman faces an inquiry into his conduct by the PM’s ethics adviser.

Mr Harra stressed he could not comment on individual cases, but said penalties were not applied when someone had taken “reasonable care”.

Mr Zahawi has said the tax authority accepted the error over previously unpaid tax was “careless and not deliberate”.

He has given permission to HMRC to share details of his taxes with the investigation into his conduct, with his allies saying he believes this will back up his version of events.

Individuals must give permission for such details to be disclosed, because of taxpayer confidentiality.

Earlier, Mr Harra, the chief executive of HMRC, gave evidence to the Commons Public Accounts Committee about managing tax compliance following the pandemic.

The MPs also quizzed him about Mr Zahawi’s tax arrangements.

He said he would not comment on specific individuals, but added: “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 BBC understands Mr Zahawi resolved a multi-million pound dispute with HMRC last year, when he was chancellor.

According to the Guardian, he paid the tax he had owed, as well as a 30% penalty, with the total settlement amounting to £4.8m.

The tax was related to a shareholding in YouGov, the polling company he co-founded in 2000 before he became an MP.

Earlier this week, Prime Minister Rishi Sunak asked his independent ethics adviser, Sir Laurie Magnus, to look into whether Mr Zahawi broke ministerial rules over the issue.

Downing Street said it wanted the investigation to be completed “as quickly as possible” but that the timeline was a matter for the independent adviser.

Mr Sunak said he would wait for the investigation to report back before making a decision on Mr Zahawi’s future. Mr Zahawi has insisted he has “acted properly throughout”.

The prime minister said: “I’m not going to pre-judge the outcome of the investigation, it is important that the independent adviser is able to do his work.”

But former Conservative Party chairman Sir Jake Berry called on Mr Zahawi to step aside while he is being investigated.

Sir Jake told BBC Question Time: “The government needs to find a mechanism for ministers and MPs who under investigation in this way to step aside, to clear their name and then to come back into government if that is appropriate”.

He said Mr Zahawi stepping aside would be “the right thing to do now”.