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UPDATE 2-UK PM Sunak asks ethics adviser to probe Conservative chair on tax

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Brings in adviser to look into Zahawi

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Under pressure, Sunak says questions need answering

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Zahawi says he's confident his behaviour was proper

(Adds Starmer comments, PM's spokesperson)

By Elizabeth Piper and Kylie MacLellan

LONDON, Jan 23 (Reuters) - British Prime Minister Rishi Sunak said on Monday he had asked his independent ethics adviser to look into a tax case involving the chairman of his governing Conservative Party because there were "questions that need answering".

Nadhim Zahawi would not stand down, allies said earlier, after Britain's tax authorities ruled he had been "careless" with his declarations but had not, the chairman said, deliberately made an error to pay less tax.

Sunak said he wanted the ethics adviser to make sure Zahawi - who was the country's finance minister for two months in 2022 and who said on Monday he was confident he had "acted properly throughout" - had complied with rules guiding ministers.

"Integrity and accountability is really important to me... There are questions that need answering and that is why I have asked our independent adviser to get to the bottom of everything," Sunak told reporters.

He said he was pleased that Zahawi had agreed to fully cooperate with the investigation, adding the charges were made before his time as prime minister and he had received the go-ahead to appoint Zahawi to government.

Sunak's spokesperson said the prime minister wanted the investigation to "be completed as quickly as possible", adding that the adviser could look into wider issues if they saw fit.

Zahawi said he welcomed the move and looked forward to explaining the "facts of the issue", adding he would not discuss it further while the investigation was under way.

In the three months since Sunak became prime minister, his government has been buffeted by questions over the probity of some ministers and lawmakers after he promised to lead the country with "integrity, professionalism and accountability".

TOO WEAK

The opposition Labour Party said Sunak, who became Britain's third prime minister in as many months after his two predecessors were brought down first by scandal and then economic chaos, was too weak to sack Zahawi.

"Everybody knows it's wrong. He clearly isn't going to resign and so the prime minister needs to show some leadership," Labour leader Keir Starmer told reporters.

"This is a test of the prime minister. He promised us, his first words were integrity and accountability. Well, if those words mean anything, the prime minister should sack him and sack him today."

The case relates to Zahawi's co-founding of opinion polling firm YouGov in 2000. He said he had asked his father to help finance and support the launch, in exchange for a stake.

He said when he was made finance minister last year by former prime minister Boris Johnson, questions were raised about his tax affairs, prompting him to raise them with government officials and the tax office which disagreed with the number of shares given to his father.

"So that I could focus on my life as a public servant, I chose to settle the matter and pay what they said was due, which was the right thing to do," he said in a statement on Saturday.

He also said the tax office found he had not set up offshore tax arrangements, but the statement did not address whether he paid a penalty to the tax office.

A tax policy website - Tax Policy Associates - has estimated that Zahawi should have paid 3.7 million pounds ($4.59 million) based on the capital gains tax incurred by the sale of tranches of shares in YouGov worth more than 20 million pounds.

The Guardian newspaper has reported that tax authorities had imposed a 30% penalty on top of the owed tax.

According to the government's website, a penalty of 30% could be paid when there was "lack of reasonable care" or where the error is considered to be deliberate.

Former Conservative Party leader Iain Duncan Smith said on Sunday that Zahawi should publish all information relating to the case and "get it all out now, whatever you have to do, and clear it up".

($1 = 0.8061 pounds) (Reporting by Elizabeth Piper and Kylie MacLellan, additional reporting by Alistair Smout, editing by Ed Osmond)