Natural Resources Wales and HMRC agree £14m settlement over IR35 errors

The settlement was in regard to the findings of a review of the organisation's engagement of contractors, which revealed that some aspects of NRW's assessments had been misinterpreted and there were errors in how it classified the employment status of some of its contractors.

In February this year, NRW's Board considered a report from its advisers and accepted its recommendation with respect to the level of liability.

Sir David Henshaw, Chair of NRW, said that the Welsh Government sponsored body recognises that mistakes had been made but that lessons had been learned.

Following a period of engagement with HMRC, a settlement figure of £14.6m (including interest) has been reached.

In addition to the settlement, HMRC has added penalties of £2.951m. However, these penalties are suspended, subject to NRW complying with specified conditions for a period of 12 months.

Sir David Henshaw said: "Like many other public and private sector organisations before us, and other bodies currently facing similar issues across the UK have discovered, IR35 rules are complex.

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

Sir David said the NRW has worked collaboratively with HMRC and the Welsh Government.

He said the NRW would be happy to share its learnings with any other public bodies currently going through a similar process.

The chair said the organisation is no longer using off-payroll contractors and its default position is that it should not use them in the future.

He continued: "We have developed a new 'Ways of resourcing with people and skills procedure' to support colleagues when recruiting additional external resource. This has been independently reviewed, and we have also put measures in place to ensure the right checks and approvals are done at the right level, and at the right stage."

With the support of the Welsh Government, a payment on account of £19 million was made to HMRC in March 2024, without admission, to prevent any accumulation of further interest on any liability. This figure was based on a preliminary, prudent estimate of the total liability.

Huw Irranca-Davies, Deputy First Minister and Cabinet Secretary for Climate Change and Rural Affairs, said: “To support Natural Resources Wales during the investigation, the Welsh Government provided interim funding to enable a Payment on Account to HMRC in 2024.

“The Welsh Government has agreed budget reduction arrangements with Natural Resources Wales to recoup this funding.

“These arrangements have been carefully developed to ensure they are affordable and minimise any impact on Natural Resources Wales’ ability to deliver its core functions and statutory responsibilities.”

Adam Carey