A row over the reported seven-figure sum he paid to settle the matter has heaped pressure on Rishi Sunak to sack the former businessman and MP for Stratford on Avon.
Labour leader Sir Keir Starmer said Mr Zahawi’s position as Tory Party chair is “untenable” and the prime minister should “show some leadership” by sacking him.
It is not the first time Mr Zahawi has been embroiled in controversy after he was caught up in the MPs expenses scandal in 2009 and has also reportedly been blocked from receiving a knighthood over his tax affairs.
Below we look at some of the occasions he has hit the headlines for the wrong reasons.
Pays settlement to HMRC to settle tax dispute
Mr Zahawi is facing growing pressure after he admitted paying a settlement to HMRC to end a tax dispute related to a shareholding in YouGov.
In a statement on Saturday, the Tory party chairman released a statement on Saturday to “address some of the confusion about my finances”, after it was reported that he paid HMRC a seven-figure sum to end a dispute.
But the statement raised further questions, including whether Mr Zahawi negotiated the settlement when he was chancellor and in charge of the country’s taxation.
The investigation in Mr Zahawi’s finances was first revealed in The Independent last July when it emerged he was being probed over the sale of shares in the polling company he co-founded 22 years ago.
Mr Zahawi, has not disclosed the size of the settlement - reported to be an estimated £4.8 million including a 30% penalty - or confirm whether he paid a fine.
The furore has heaped political pressure on Rishi Sunak, who has ordered his new ethics adviser, Sir Laurie Magnus, to investigate Mr Zahawi’s tax affairs.
‘Blocked from knightood’ over tax affairs
The tax row has reportedly scuppered Mr Zahawi’s chances of getting a knighthood.
He was due to receive a knighthood in the new year’s honours list but was later blocked after Whitehall officials checked with the HMRC about his tax situation in December, The Sun on Sunday reported.
Tax campaigner Richard Murphy, professor at Sheffield University Management School, told The Independent that HMRC has the power to highlight tax disputes for people due to receive an honour.
“They have the power to advise the security services, No 10, Cabinet Office about potential risks with appointments,” he said.
Using taxpayer cash to heat his stables
Mr Zahawi was one of many politicians to get caught up in the MPs expenses scandal after it emerged that taxpayers were footing the bill so could heat his stables.
The MP for Stratford on Avon claimed he was “mortified” that his £5,822 expenses claim for his energy bills was used to cover electricity and heating oil for his estate in Warwickshire, which was designated a second home.
In a statement issued on Sunday he said: “Since last week’s coverage of my energy bills I have been looking into them further and can confirm that all claims for heating fuel relate purely to my second home.
“However I have made a mistake with my electricity claims. On investigation I have discovered that the electricity supply for a mobile home located in the stable yard and for the stables themselves was linked to my house.
“Whilst a meter was installed in the stable yard I have only been receiving one bill, it was wrong to assume I was receiving two and to have not checked this sooner.
“I am mortified by this mistake and apologise unreservedly for it.”
Attending men-only Presidents Club dinner
Mr Zahawi was given a “dressing down” during a meeting with Tory chief whip Julian Smith in January 2018 after attending a men-only dinner where reports emerged of hostesses being groped and harassed by guests.
The allegations at the Presidents Club dinner emerged after an undercover investigation by the Financial Times. The accusations were branded “a gross example of sexual harassment”, by former Labour leader Jeremy Corbyn.
Mr Zahawi reportedly said he found the dinner “extremely uncomfortable” and left the function early.
In response, he wrote on social media: “I do unequivocally condemn this behaviour. The report is truly shocking. I will never attend a men-only function ever.”
Additional reporting by agencies