Natural Resources Wales agrees £14.6m settlement with HMRC

Natural Resources Wales (NRW) has reached a £14.6 million settlement with HM Revenue and Customs (HMRC) following an investigation into its historic tax treatment of contractors under IR35 regulations.

The agreement concludes a long-running enquiry into how NRW classified contractors who worked for the organisation on a temporary basis since the introduction of the UK Government’s off-payroll working reforms in 2017.

NRW said it had “actively engaged” with HMRC throughout the process and acknowledged that errors had been made in assessing whether some contractors should have been treated as employees for tax purposes.

Following advice from external tax and legal experts, NRW’s board reviewed the findings earlier this year and accepted responsibility for the misinterpretations that led to the liability.

Penalties

The total settlement amounts to £14,631,191.13, including interest. HMRC also imposed penalties of £2.95 million, but these have been suspended for 12 months on the condition that NRW meets specific compliance requirements.

Sir David Henshaw, Chair of NRW, said the organisation recognised its mistakes but had taken significant steps to improve internal systems and ensure future compliance.

“Like many other public and private sector organisations before us, we have found that IR35 rules are complex,” he said.

“At the time of our assessments, we believed we had followed HMRC guidance in good faith. But we accept that the errors that came to light should not have been made.

“Our focus throughout has been on resolving the matter collaboratively, taking expert advice, and putting in place new procedures to strengthen compliance.”

Internal procedure

NRW said it has now stopped using off-payroll contractors, introducing a new internal procedure to guide recruitment and ensure proper checks and approvals are in place.

With support from the Welsh Government, NRW made a £19 million payment on account to HMRC in March 2024 to prevent further interest from accruing while the precise liability was calculated.

The final figure reflects the introduction of the “offset rule”, which allows taxes already paid by contractors and their personal service companies to be deducted from the total owed.

NRW said any funds returned by HMRC will be transferred back to Welsh Government, with the remaining balance covered through a phased budget reduction over the next few years.