Natural Resources Wales (NRW) has become the latest public body to face the consequences of historic non-compliance under the Off-Payroll Working (IR35) rules, settling with HMRC for £14.6 million in taxes and interest, plus an additional £2.9 million penalty – suspended for 12 months subject to conditions.
The case dates back to HMRC’s review of NRW’s tax treatment of contractors following the introduction of the public sector IR35 reforms in 2017. Like many other public bodies, NRW had relied on contingent workers for time-limited projects and specialist expertise where in-house capability was unavailable. However, following HMRC’s investigation, the organisation found that errors and misinterpretations had been made in determining the IR35 status of a number of its contractors.
Growing list of Public Bodies falling foul of IR35
NRW’s case follows a familiar pattern. It joins a growing list of public sector bodies including DEFRA, DWP, the Home Office, the Ministry of Justice, and UK Research and Innovation (UKRI), that have collectively paid hundreds of millions to HMRC after similar compliance failures.
Each case reinforces the same point: the Off-Payroll rules are complicated, resource-intensive, and very difficult for many organisations to manage effectively. Even where organisations believe they have followed HMRC’s guidance, errors in applying the rules, particularly around making IR35 status determinations without reasonable care can lead to substantial liabilities.
In a statement, NRW’s Chair, Sir David Henshaw, acknowledged that “mistakes had been made” but emphasised that the organisation had acted in good faith and worked collaboratively with HMRC to resolve the issue.
NRW blanket ban off-payroll workers
NRW has taken the decision to stop engaging off-payroll contractors entirely as a result of the investigation. The organisation confirmed that its new “Ways of Resourcing” procedure now sets the default position as not using contractors operating via limited companies.
This shift, described as a “change in processes”, reflects a growing trend among engagers who see blanket banning limited company contractors as the simplest route to avoiding IR35 risk. This proves that for many organisations, the administrative and financial burden of getting the rules right has become too much to manage.
This broadbrush approach that removes access to the flexible, highly skilled talent pool that contractors represent could have different implications for NRW down the line.
Shutting the door on flexible & skilled resource has wider impacts
Many public bodies, including NRW, have long relied on contractors to fill critical skills gaps, deliver complex projects, and provide the flexibility needed to meet changing operational needs. With that option now off the table, organisations like NRW face an uphill struggle.
The result is a reduced access to specialist expertise, project delays, and higher employment costs. The tax payer also ultimately bears the cost of both compliance failures and the expense of replacing flexible expertise with permanent or agency staff.
If NRW and other organisations that have banned limited company workers are pushing their contractors through umbrellas, this route will soon come with its own compliance challenges. From April 2026, the new Joint and Several Liability (JSL) legislation will make agencies and potentially end clients liable for tax debts arising from non-compliance in umbrella company supply chains.
The Off-Payroll Working rules continue to leave companies in a position where risk cannot easily be avoided.
A framework in need of reform
Cases like NRW’s highlight the need for a fundamental review of the Off-Payroll Working rules. The current system is failing to provide clarity or consistency. Instead, it is deterring engagement with contractors and penalising organisations that make every effort to comply in good faith but fall short in interpretation or evidence.
For this country to have a fairer, more sustainable environment for genuine self-employment, businesses need to be in a position to confidently engage the flexible and skilled contractors they rely on.
Off-Payroll Working is sticking around for now
Despite its many flaws, the Off-Payroll Working legislation is not going anywhere. For now, engagers must continue to prioritise compliance. That means:
- Accurate and evidence-backed IR35 status determinations.
- Well-drafted contracts that accurately reflect working practices.
- Regular reviews of engagements and internal compliance processes.
- And where necessary, independent expert advice.
NRW’s predicament is another reminder that Off-Payroll Working compliance is not optional, and mistakes can be extremely costly. For those responsible for engaging contractors, the lesson remains the same: get your compliance in order, or risk joining the growing list of organisations learning this lesson the hard way.
If your business needs help with Off-Payroll / IR35 contact us today.
