Tax lawyer who brought down Nadhim Zahawi says ex-Labour chairman also has questions to answer

A former Labour Party chairman was questioned by the tax authorities after he received almost £140,000 in payments and written-off loans from his trade union.

Ian Lavery, the MP for Wansbeck in Northumberland, told i an HMRC enquiry into his tax affairs found there was “no further assessment necessary” but he declined to answer repeated questions on whether he had declared all his payments and loans from the Northumberland National Union of Mineworkers (NUM).

Mr Lavery, who led the small branch of the NUM before becoming an MP, benefited from these arrangements between 2007 to 2013.

Dan Neidle, the tax lawyer who received legal threats after he began to question Mr Zahawi’s tax arrangements, is now calling on Mr Lavery to clarify his discussions with HMRC.

Mr Neidle said: “When there are financial irregularities, undocumented payments, and uncommercial arrangements involving loans, it is reasonable to ask whether the correct tax has been paid on the payments. It is a very simple question, and should have a simple answer.”

Mr Lavery insisted his tax affairs were up to date, but did confirm he had been the subject of what he termed a “desktop review” of his tax affairs by HMRC.

After becoming an MP in May 2010, Mr Lavery initially received redundancy payments of £60,600 without tax from the NUM branch he had been the general secretary of for eight years.

Northumberland NUM then recognised an overpayment of £30,600 on the redundancy. Mr Lavery paid £15,000 back, but not the remaining £15,600, meaning he retained a total of £45,600.

In October 2017, the Certification Office for Trade Unions and Employer Associations reported on allegations of financial irregularities within Northumberland NUM.

While redundancy payments are tax free up to £30,000, the Certification Office said there was no documentary evidence that Mr Lavery went through a redundancy process.

The Northumberland NUM also wrote off loans to Mr Lavery totalling £91,545. It is understood this money was used to help pay off Mr Lavery’s home mortgage.

While, Mr Lavery told i that his tax affairs are up to date, he also confirmed that he had been the subject of an HMRC enquiry into his tax affairs soon after the report from the Certification Office was concluded.

The report found: “The Union and Mr Lavery stated that the post of general secretary and therefore, Mr Lavery, were made redundant in May 2010. Both the Union and Mr Lavery were given the opportunity to provide documentary evidence to show a process or decision by which Mr Lavery was made redundant.

“Neither were able to do so and stated that no such documentary evidence existed.”

Mr Lavery, who succeeded union firebrand Arthur Scargill as President of the NUM in 2002, said: “All taxes are and were always paid in line with HMRC requirements by myself and my previous employer. Indeed, following previous press speculation a desktop review of recent tax returns by HMRC found no further assessment necessary.”

Question Ian Lavery declined to answer on his tax affairs

You received a tax-free redundancy payment from the Northumberland NUM of £60,600 in May 2010, at the same time you became MP for Wansbeck. The NUM then recognised you were overpaid by £30,600 and you refunded £15,000. 

Did you declare the remaining £15,600 overpayment on your tax return? 

Did you pay tax on the £15,600 overpayment? 

In October 2017, the Certification Office for Trade Unions and Employer Associations reported on allegations of financial irregularities within the Northumberland NUM. Its finding in paragraph 18 of its report states there was no documentary evidence to support any redundancy process being undertaken with you. If no redundancy process was undertaken, then the entire payment from Northumberland NUM to you should have been declared to HMRC as income.

Did you declare the entire payment? 

Did you pay tax on this sum? 

You also received loans from the NUM amounting to £91,545. These were later written off by the NUM. These loans became taxable income as soon as they were written off.  

Were these loan write-offs put on your tax return?    

Did you pay tax on the full £91,545?  

Many of the loans were also interest free, or lent at below market interest rates. 

Did you declare those loans that were interest free as a benefit in kind to HMRC? 

Did you declare those loans that were lent at below market interest rates to HMRC?

Seeking further clarification, i asked Mr Lavery whether he declared both all the sums involved in the redundancy payment and the loan write-offs to HMRC, but he repeatedly declined to answer.

The MP added: “To clarify there have been no additional payments requested by HMRC nor any penalties applied.”

Mr Neidle said: “I fear that, like Mr Zahawi, Mr Lavery has decided the best response to people asking legitimate questions about his tax affairs is to provide bland statements that all tax has been properly paid, ignore the specific questions being asked, and hope it all goes away. I expect, like Mr Zahawi, he will be disappointed.”

A partner in a leading tax advisory firm told i: “I would expect a trade union officer to keep documentation on his redundancy. He has in total received £45,600 with no apparent tax deduction. These arrangements are at best highly irregular.”

The expert, who believes Mr Lavery should have paid around £70,000 in relation to the redundancy payments and loan-write offs, added:

“It is highly unusual to have loan write offs of this magnitude, and not normal business practice.

“These loan write offs are taxable income and assessable on his own personal tax returns. Given the nature of these transactions, Mr Lavery should be able to confirm whether these loan write offs were put on his tax return.

“Many of these loans were also interest free, or at below market rate and Mr Lavery should also confirm whether the benefit in kind treatment was correct.”

Mr Zahawi was sacked by Rishi Sunak after the Prime Minister’s ethics adviser confirmed he had committed a “serious breach” of the ministerial code after failing to declare the HMRC investigation into his tax affairs.

Mr Zahawi said he had made a mistake when he failed to declare income of around £27m to HMRC, and paid an estimated £5m to the tax authority following the probe into his financial affairs. The Labour Party did not respond to questions over Mr Lavery’s payments from the NUM, and did not comment on what Mr Starmer’s position would be should one of his MPs be found to have failed to declare all the income they should have done to HMRC.

Lavery’s response to tax questions is ‘not good enough’

By Dan Neidle

Did Ian Lavery MP pay tax on payments of £140,000 he received from his former union?   

He says all his tax returns have been correctly made, but refuses to comment on the specific questions on these payments.   

That is the same answer I received from Nadhim Zahawi back in July, and it’s not good enough.   

The Certification Office for Trade Unions & Employers’ Associations reported back in 2017 on financial irregularities in the Northumberland NUM, of which Mr Lavery was general secretary.   

Mr Lavery received a “redundancy payment” when as a legal matter he was not made redundant – he left the union because he became an MP. He also received loan write-offs of £91,545, which is highly unusual for an employee.    

There was also a peculiar arrangement whereby the union compensated Mr Lavery and his wife for underperformance of an endowment policy that Mr Lavery and his wife (not the union) had invested in.    

The union (in the words of the Certification Office report) “in effect purchased a share in its general secretary’s home”, again contrary to usual commercial and trade union practice.    

So far as I’m aware, no justification has ever been provided for these arrangements. I will let others judge the propriety of the arrangements, and focus on the tax consequences.   

Experienced accountants say the loan write-offs and “redundancy payments” should have been fully taxable. I agree.   

It was the unusual and uncommercial nature of the YouGov and Balshore structure which made me wonder if Mr Zahawi failed to pay all the tax that was due, and I was right.    

The unusual and uncommercial nature of the payments to Mr Lavery raises the same questions.   

Dan Neidle is the founder of Tax Policy Associates and is credited with uncovering the tax issues surrounding Conservative Party chairman Nadhim Zahawi  

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