Reform UK is operating under a “stench of sleaze” Labour have said, after reports that Nigel Farage struck a secret deal to return as leader of Reform UK months before the general election.

Farage was in discussions about a return to the political frontline from as early as March 2024, despite claiming that he had no intention of returning to politics until June 2024, the Sunday Times reported.

In April this year, the Guardian revealed Farage did not disclose a £5m personal gift from the Thailand-based crypto billionaire Christopher Harborne which he received in April 2024. He told senior figures in Reform UK he would need “a million a year” to cover lost earnings if he stood for parliament in the 2024 general election, sources told the Guardian.

Under parliamentary rules, newly elected MPs must register any relevant financial interests and gifts received in the 12 months prior to their election.

Farage has repeatedly said that he was an “influencer” and media personality at the time of the gift, and was therefore under no obligation to declare the sum. The parliamentary standards watchdog opened a formal investigation over the £5m gift in May. Farage is also now subject to another inquiry over allegations that he was financially supported by the crypto gambler and convicted fraudster George Cottrell, who is a close friend.

Farage – who is contesting a byelection in Clacton in a little over two weeks, after resigning over the issue – has accused those raising questions about his financial backing of “demonising” him as part of a “coordinated pile-on” to stop Reform UK. The main parties have declined to field candidates against Farage; his main opponent is now Count Binface, a parody candidate. If Farage is sanctioned for failing to declare the gifts, he may be removed from the House of Commons and face a second byelection.

According to the Sunday Times, the Reform UK leader renegotiated a deal – supervised by Cottrell – to return as the leader of Reform with the party’s then leader Richard Tice in March and April 2024. Under the terms of the deal, once Farage became leader, Reform would repay or write off more than £1m in outstanding loans it had received from Tice’s company, the Times reported.

The deal was reportedly to have been presented by Farage and Cottrell to the party’s treasurer in mid-May, undermining the Reform leader’s claim that he had no intention until June 2024 of returning to politics.

Reform sources told the Guardian that Farage had learned of the party’s liabilities and what loans would have to be repaid if he returned as leader and any plan had been drafted for if, not when, he became leader. They said he decided not to return, before reversing that decision.

Bridget Phillipson, the chair of the Labour party, said that if the revelations were accurate it “blows Nigel Farage’s story apart”.

“It would mean Farage was privately negotiating his return to frontline politics while publicly presenting as someone who hadn’t decided whether to return,” said Phillipson. “That raises even more questions about the secret £5m gift from crypto billionaire Christopher Harborne, further undermining his account of why he kept it secret.

“Grubby pacts, secret gifts, support from a convicted fraudster, attempted cover-ups and police investigations – it all adds up to a stench of sleaze the public can smell from miles away.”

Farage is facing a raft of questions about his financial backing aside from the £5m gift from Harborne, which his lawyers said was unconditional and made without the expectation of Farage returning to politics. Financial industry sources have revealed to the Guardian that transactions involving Reform’s leadership have been referred to the National Crime Agency.

Farage’s friend and aide Cottrell – known as “posh George” – and his mother Fiona Cottrell have been interviewed under criminal caution by Scotland Yard detectives. Sources said that Cottrell, who was jailed for eight months in the US for wire fraud in 2017 and is now based in Montenegro, transferred a total of more than $2m (£1.48m) to his mother in 2024, with each sum arriving shortly before she made substantial donations to the party.

Election law stipulates that donations to political parties can only be made by permissible donors including registered UK voters, UK-registered companies and UK trade unions. It bans concealing or disguising donations derived from an “impermissible” donor or the use of “false” information about a donation including the amount or the identity of the donor. Tice has said Fiona Cottrell was a permissible donor and he understood her son was too.