Natural Resources Wales (NRW) will pay £14.6 million to HMRC after the tax authority found the public body had incorrectly assessed the employment status of contractors under the government’s IR35 rules.
The settlement follows a long-running HMRC investigation into NRW’s use of off-payroll workers over several years. The case centred on whether individuals hired for short-term specialist projects should have been treated as employees for tax purposes.
HMRC concluded that some contractors were misclassified, leading to underpaid tax liabilities. NRW’s own review confirmed errors in its assessments, admitting that “some aspects of assessments had been misinterpreted.”
NRW is Wales’s environmental body, overseeing land, water and natural resource management — including regulation that affects farming, forestry and rural businesses.
In total, HMRC agreed a settlement figure of over £14.6m including interest. The tax authority also imposed penalties of £2.95 million, which have been suspended for 12 months while NRW’s future compliance is monitored.
NRW Chair Sir David Henshaw said the organisation “recognises that mistakes had been made but that lessons had been learned.” He added that the body believed it had followed HMRC guidance “in good faith” at the time, but accepted the findings of the review.
While NRW has emphasised its cooperation with HMRC and the Welsh government, the case highlights continuing difficulties across the public sector in applying complex IR35 regulations, which govern how off-payroll workers are taxed.
As part of its response, NRW said it has ended the use of off-payroll contractors and introduced a new Ways of Resourcing with People and Skills procedure. The updated process, which has been independently reviewed, includes stricter checks on employment status and approvals at senior level.
In March 2024, with Welsh government support, NRW made a payment on account of £19 million to HMRC to prevent further interest accruing while the final liability was determined.
The confirmed figure takes into account the 2024 offset rule, allowing taxes already paid by contractors and their companies to be deducted.
Funds returned by HMRC will be transferred back to Welsh government. NRW has agreed a phased budget reduction to cover the remaining balance, spread over several years to maintain delivery of its Corporate Plan objectives.
The HMRC penalties remain suspended for one year, contingent on NRW demonstrating full compliance with tax and employment regulations.
