Welsh Government-sponsored charity Natural Resources Wales (NRW) has paid £14.6 million to HMRC after admitting historical non-compliance with the UK's IR35 off-payroll working rules.
The settlement, which includes a £2.9 million fine (suspended for 12 months), arises from errors in determining the employment status of contractors engaged between 2017 and recent years.
NRW confirmed it had been in discussions with HMRC since 2017, when off-payroll reforms first came into force for public sector bodies – the responsibility for assessing IR35 status was shifted from contractors to the off-pay organisation.
In a statement, the organization said: “Our procedures have now been changed. We are no longer using off-payroll contractors, and our default position is that we should not use them in the future.”
According to NRW disclosures, miscalculations of the contractor's status under the IR35 framework resulted in tax liabilities totaling £14,631,191.13, with HMRC also issuing suspended penalties.
Sir David Henshaw, chairman of NRW, said the organization accepted responsibility for the errors, described the IR35 rules as “complex” and said the focus was now on “resolving the issue” and strengthening internal processes.
“Many other organizations in both the public and private sectors have found that the IR35 rules are complex,” he said.
“But we accept that the mistakes that occurred should not have been made. Our focus has been on resolving the issue with HMRC and the Welsh Government, taking advice from legal and tax experts to inform our decisions.”
The case has drawn sharp criticism from compliance experts, who warn that public bodies are still struggling with IR35 interpretation eight years after the reforms were introduced.
Seb Maley, CEO of Qdos, an IR35 compliance specialist, said the NRW case highlights “the staggering cost of mismanagement of IR35 reform” and serves as a warning to all organizations involving contractors.
“These figures highlight the cost of getting IR35 wrong,” Maley said. “Misinterpreting or incorrectly applying the rules can easily lead to huge tax bills. But scrapping contractors altogether is not the solution – IR35 can be managed with the right processes in place.”
He said many public and private sector organizations now successfully contract contractors, combining workforce flexibility with strong governance.
The IR35 reforms, first introduced in the public sector in 2017 and later extended to the private sector in 2021, were designed to prevent tax avoidance by individuals operating through limited companies but acting like employees.
However, the rules have faced criticism for vagueness and administrative burden, leading to a series of high-profile settlements. HMRC has recovered millions from government departments and public bodies including the BBC, Defra and the Department for Work and Pensions in similar cases.
NRW said it has improved its recruitment and contractor engagement processes and will continue to liaise with HMRC and Welsh Government advisers to ensure full compliance in future.
A spokesperson said, “Our focus is on maintaining transparency, learning from this experience, and preventing future errors.”
jamie young
Jamie is a senior reporter at Business Matters, with over a decade of experience in UK SME business reporting. Jamie has a degree in Business Administration and regularly attends industry conferences and workshops. When not reporting on the latest business developments, Jamie is passionate about mentoring emerging journalists and entrepreneurs to inspire the next generation of business leaders.
