Following engagement with HMRC, NRW confirmed that a settlement of £14.63 million, including interest, has been agreed.
In addition, HMRC has applied penalties of £2.95 million, though these will be suspended for 12 months provided NRW meets specified compliance conditions.
NRW explained that a review of its contractor arrangements had identified misinterpretations in how employment status had been assessed, leading to errors in the classification of some contractors.
David Henshaw, Chair of NRW, commented: “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.”
£19 million paid by Welsh Government
In March 2024, the Welsh Government made a £19 million payment to HMRC on behalf of NRW, without admission of liability, to prevent further accumulation of interest while discussions continued.
That figure was based on a preliminary estimate of NRW’s potential liability under IR35.
The final settlement figure, confirmed today (24 October 2025), reflects the application of the “offset rule” introduced in 2024, which allows for taxes already paid by contractors and their personal service companies to be offset against the organisation’s total liability.
NRW said that funds returned by HMRC following application of the offset rule would be transferred back to the Welsh Government.
The remaining balance will be covered through a phased budget reduction spread over the coming years, which NRW said would allow it to reimburse the government while safeguarding delivery of its Corporate Plan objectives.
Henshaw explained: “Our processes 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.
“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.”
Discussions began in 2017
NRW has been in active discussions with HMRC since the IR35 off-payroll reforms were first introduced to the public sector in 2017.
A report from NRW’s advisers was presented to the organisation’s Board earlier this year, with the Board accepting its recommendation on the level of liability in February 2025.
Henshaw added: “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.
“We would be happy to share our learnings with any other public bodies currently going through a similar process.”
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