[Wales] HMRC orders NRW to pay £14.6m for IR35 failures

Natural Resources Wales (NRW) has been ordered to pay £14.6 million to HMRC after the tax authority found the public body to have incorrectly assessed the employment status of contractors under IR35 rules, FarmingUK reports.

The settlement comes after a long-running HMRC investigation into NRW’s use of off-payroll workers over several years. 

The case reportedly 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 also confirmed errors in its assessments. It acknowledged that “some aspects of assessments had been misinterpreted.”

NRW is Wales’s environmental body with oversight responsibility for land, water and natural resource management, including regulation that affects farming, forestry and rural businesses.

HMRC reportedly agreed a total settlement figure of more than £14.6m, including interest. In addition, it imposed penalties of £2.95 million. These have been suspended for 12 months while NRW’s future compliance is monitored.

NRW Chair Sir David Henshaw stated that 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.

The case highlights ongoing difficulties applying complex IR35 regulations in organisations across the public sector.

In its response, NRW said it had ended the use of off-payroll contractors and introduced a new Ways of Resourcing with People and Skills procedure. The updated process has been independently reviewed. It now includes stricter checks on employment status and approvals at the senior level.

In March 2024, with the support of the Welsh government, 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 reportedly be transferred back to the 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 will remain suspended for one year if NRW demonstrates full compliance with tax and employment regulations.

Source: FarmingUK

(Quotes via original reporting)

Natural Resources Wales (NRW) has been ordered to pay £14.6 million to HMRC after the tax authority found the public body to have incorrectly assessed the employment status of contractors under IR35 rules, FarmingUK reports.

The settlement comes after a long-running HMRC investigation into NRW’s use of off-payroll workers over several years. 

The case reportedly 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 also confirmed errors in its assessments. It acknowledged that “some aspects of assessments had been misinterpreted.”

NRW is Wales’s environmental body with oversight responsibility for land, water and natural resource management, including regulation that affects farming, forestry and rural businesses.

HMRC reportedly agreed a total settlement figure of more than £14.6m, including interest. In addition, it imposed penalties of £2.95 million. These have been suspended for 12 months while NRW’s future compliance is monitored.

NRW Chair Sir David Henshaw stated that 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.

The case highlights ongoing difficulties applying complex IR35 regulations in organisations across the public sector.

In its response, NRW said it had ended the use of off-payroll contractors and introduced a new Ways of Resourcing with People and Skills procedure. The updated process has been independently reviewed. It now includes stricter checks on employment status and approvals at the senior level.

In March 2024, with the support of the Welsh government, 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 reportedly be transferred back to the 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 will remain suspended for one year if NRW demonstrates full compliance with tax and employment regulations.

Source: FarmingUK

(Quotes via original reporting)