Welsh government bails out Natural Resources Wales in tax blunder

The Welsh government has paid the tax bill of its environmental agency, Natural Resources Wales (NRW), with a £14.6m final settlement to HM Revenue and Customs (HMRC)

NRW, which is responsible for enforcing the environmental laws on agricultural activities on air, land and water in Wales, was under investigation by HMRC for historic non-compliance with off-payroll working rules, also known as IR35 regulations. 

See also: Welsh government pays Natural Resources Wales £19m tax bill

To support NRW during the investigation, the Welsh government provided £19m in interim funding in March 2024 to enable a payment on account to HMRC, preventing any further accumulation of interest on liabilities.

This figure was based on a preliminary, prudent estimate of the total liability, and NRW will now transfer the funds returned from HMRC to the Welsh government.

The final figure of £14.6m reflects the 2024 introduction of the “offset rule”, which allows taxes already paid by contractors and their personal services companies to be offset against the organisation’s total liability.

Penalty

As part of the settlement, HMRC has also imposed a £2.9m penalty, suspended for 12 months, subject to NRW meeting specified compliance conditions during that period.

The agency is understood to have reviewed its processes to ensure continued compliance. 

“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,” said Sir David Henshaw, chairman of NRW.

Reduced budget

NRW has agreed on a phased budget reduction to cover the remaining balance and said this approach will be spread over the next few years, enabling it to fully reimburse the Welsh government while safeguarding the delivery of its corporate plan objectives.

Sir David said that the organisation recognised that mistakes had been made, but that lessons had been learned.

“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,” he said.

Wasteful spending

Opposition parties have criticised the bailout and raised concerns about NRW’s ability to fulfil its role. 

Welsh Conservative shadow cabinet secretary for climate change and the environment, Janet Finch-Saunders MS, said:

“Although the Welsh government says the repayment plan is affordable, the reality is that money which would normally fund vital environmental enforcement, including tackling sewage pollution, will now be redirected to cover the cost of NRW’s £14.6m tax settlement.”

A Plaid Cymru spokesman added:

“At a time of squeezed budgets and cuts to services, it’s deeply regrettable that taxpayers’ money is being used to pay for such serious governance failures.”