Government-sponsored body, National Resources Wales (NRW), has settled an ongoing dispute with HMRC over its compliance under the off-payroll working rules (often known as IR35 reform) including a £2.9m penalty. In a written statement from Huw Irranca-Davies, Deputy First Minister and Cabinet Secretary for Climate Change and Rural Affairs, it appears HMRC have now concluded their investigations into Natural Resources Wales (NRW) IR35 tax arrangements. At this point, Natural Resources Wales has settled a tax bill for £14.6m due to a legacy tax issue dating back seven years.
NRW confirms that it has been in discussion with HMRC regarding how the body has been engaging freelancers and contractors since 2017. This was the year in which off-payroll working rules were introduced to the public sector, resulting in public sector bodies becoming responsible for determining the IR35 status of contractors, and in many cases, carrying the tax liability.
Errors have emerged around determining the IR35 status of contractors engaged by NRW. The tax liability amounted to over £14m with NRW also being issued with a £2.951m fine – suspended for 12 months. “Our processes have now been changed,” said NRW, “We are no longer using off-payroll contractors and our default position is that we should not use them in the future.”
Commenting on the case, Qdos CEO, Seb Maley, said: “The sheer numbers shine the spotlight on the staggering costs of mismanaging IR35 reform – and it’s a timely reminder to all businesses that compliance under the off-payroll working rules is vital. Misinterpret them and misapply the IR35 status of contractors and there’s every chance that you’ll be hit with a big tax bill.
“Stopping engaging contractors altogether isn’t necessary, though,” he added, “and I’d urge them to reconsider their stance. It’s widely accepted that the off-payroll working rules – while complex – can be managed.”
Dave Chaplin, CEO of IR35 Shield believes the case also highlights messages about transparency, proportionality, and the cost of bureaucratic delay.
“According to NRW’s own 2017/18 accounts, HMRC began investigating this matter seven years ago,” he said, “so why has it taken so long to reach a conclusion? In our experience under the new rules, off-payroll compliance checks are generally resolved within 6 to 12 months.
“The figure of £14.6m includes interest to March 2024, which could be around £4m of that bill, due to the unnecessary delays in the investigation by HMRC. Depending on the contractual terms, NRW may also be entitled to recover some of that money from contractors who haven’t yet settled their own tax.
“This case appears to be a legacy issue from the early use of HMRC’s flawed CEST tool, a cautionary tale of bureaucratic drift rather than deliberate wrongdoing,” Chaplin said. “It highlights the need for fairness, proportionality, and the need not to delay resolution in IR35 cases unnecessarily.”
Sir David Henshaw, Chair of NRW, stated: “As many other organisations in the public and private sectors in the United Kingdom have already discovered – along with others currently facing similar problems – the IR35 rules are complex.
“But we accept that the mistakes that eventually came to light should not have been made. Our focus throughout has been to resolve the issue with CThEF, work in conjunction with them and the Welsh Government, and take the advice of the legal and tax experts available to inform our decisions.”
“Many organisations across the public and private sectors have the right processes in place to engage contractors compliantly,” concluded Seb Maley, “a move which allows them to manage costs in an efficient way and tap into the flexibility and skills of the independent workforce.”
