What happened with National Resources Wales (NRW) and IR35?
It's a question worth asking, especially as the IR35 issues faced by Natural Resources Wales – a government-sponsored body which ensures that natural resources such as water, air, soil and wildlife are sustainably managed – started many moons ago, following an HMRC inspection, writes Nikola Nowak, tax consultant at Markel Tax.
Possibly due to the nature of the work NRW is involved with (providing crucial services such as flood warnings for Wales) and the large liabilities in dispute, NRW was keen to protect itself from interest accruing while the tax enquiry went on.
When you pay £19m to HMRC but don't admit any wrongdoing
To this end, NRW made a payment on account to HMRC in the sum of £19million without any admission of wrongdoing.
This money was provided by the Welsh Government to support NRW.
According to NRW, the £19 million figure "was based on a preliminary, prudent estimate of the total liability."
How a £19m payment to HMRC became 'just' a £14m IR35 liability
Nonetheless, following an in-depth analysis of the sums involved and in conjunction with the offset provision (which came into play in 2024 to avoid double taxation), the actual liability is in the region of £14 million.
The £14 million figure was reached by NRW and their advisers, as well as HMRC.
NRW have confirmed that the overpayment to HMRC will be returned to the Welsh Government and has "agreed a phased budget reduction to cover the remaining balance."
Wooden dollars that changed hands FOUR times
It's been a somewhat superfluous journey for the money — having changed government hands no less than four times; from the Welsh Government to NRW, then to HMRC, back to NRW and finally, returning back to the Welsh Government.
We still do not have any fine IR35 compliance details regarding what went wrong for NRW and exactly how they made a £14 million mistake (or plural — 'mistakes'), in just one area of taxation.
Was NRW a CEST user?
That makes the opening question, 'What happened with National Resources Wales and IR35?' a bit tricky to answer.
Indeed, we cannot say for certain whether NRW relied on CEST or HMRC guidance, or whether they misinterpreted the off-payroll working legislation.
So one can only speculate on the intricacies of how they got to this point of paying £14million for IR35 missteps.
NRW says it won't use limited company workers in the future
However, we do know, by NRW's own assertions, that they have changed their internal processes.
Unfortunately, they have also confirmed they will no longer be using off-payroll contractors, and the "default position is that we should not use them in the future."
This isn't great news for the contracting landscape, which has long been facing pressures caused by the off-payroll working rules (Chapter 10 ITEPA).
Why HMRC is the only winner of NRW's £14m brush with IR35
Once again, we are unclear of the particulars and whether this is a blanket ban on using limited company contractors as a whole, or only using contractors on an inside IR35 basis.
Either way, the only winner here is HMRC, up by some £14million, as this will no doubt reduce opportunities available to self-employed individuals within the public sector, while placing further burden on finding specialist skills and expertise for niche government bodies.
Moreover, the daunting figure of £14m liability for IR35 may well discourage other public sector entities from engaging with the IR35 legislation, especially as NRW has said it "would be happy to share our learnings with any other public bodies currently going through a similar process."
The IR35 cause of NRW's hot water with HMRC may never be known
It would be helpful to know more about the details of the HMRC enquiry, though it's not looking likely that we will ever learn what practices left National Resources Wales in such hot water.
Therefore, contractors, and even us tax specialists trying to learn more about IR35 compliance, aren't likely to join HMRC on the single entry 'winners' list either.
The future (might include a JSL-induced return to outside IR35 roles)
Away from NRW, we have noticed a decline in the use of limited company contractors across all sectors since 2021, although we are currently awaiting the introduction of the 'umbrella company' JSL legislation in April 2026 to see if this causes a shift away from umbrellas and back to 'outside IR35' contracting.
