FCSA clarifies anti-tax avoidance stance of offshore Charter change for umbrella firms

One of the UK’s main umbrella accreditation bodies has moved to clear up the confusion caused by a recent tweak to its Charter that appeared to reverse a ban on letting its members run offshore schemes and structures.

As previously reported by Computer Weekly, the Freelancer and Contractor Services Association (FCSA) introduced a change to its membership Charter in March 2021 that was interpreted as a softening of its stance towards its members operating offshore schemes and structures.

Such setups are sometimes used by non-compliant umbrella firms to help the contractors they employ avoid paying tax on their earnings. They do this by opting to pay part of the contractor’s salary in the form of a non-taxable loan or annuity, which are typically paid out by the umbrella through an offshore trust.

Given the role the FCSA plays in providing accreditation to compliant umbrella firms, the tweak to its Charter led to contracting market stakeholders raising concerns that this change could affect how its members are perceived in the market.

In its previous form, the Charter stated that every one of the association’s members must be UK-based firms that “do not provide any offshore solutions/structures”, but the March 2021 version stated they could provided their offshore operations do not make up more than 25% of their business.

In a statement to Computer Weekly earlier this week, FCSA CEO Phil Pluck said the change was intended to bring the Charter’s contents into line with the organisation’s separate Codes of Compliance, which have “always allowed” its members to operate up to 25% of their operations offshore.

Sources within the umbrella community said there was an understanding that this clause was included to allow members to outsource their call centre, invoice processing and customer service operations to overseas parties, for example. 

“It was always clear that these types of admin activities are very different to offshore structures, which are generally mechanisms for tax efficiency, tax avoidance and evasion,” the source said.

However, there were concerns raised privately to Computer Weekly about the ambiguity of the reworked Charter’s wording, in that it did not make it clear enough what type of offshore setups it was permitting its members to operate.

In response, the FCSA published an expanded version of the clause in a new version of its Charter, which it announced in a post on the professional social networking site, LinkedIn.  

“We were made aware that [clause] 1.1. of our Charter may not fully represent the meaning behind the wording and may not fully encompass the FCSA codes that already exist. As a result, we have expanded 1.1 of our Charter to ensure there can be no misunderstanding,” said the FCSA, in a statement on its LinkedIn page.

The expanded version of this clause now states that: “FCSA members shall be UK-based firms that do not provide more than 25% of their operations outside of the UK. The FCSA does not permit offshore arrangements/solutions or structures that seek to evade or avoid UK tax regulation employment rights as set out in the FCSA codes.”

In its LinkedIn post, the FCSA added: “At no point in our history have we supported anything other than the correct and lawful treatment of taxation and would never support any form of avoidance scheme on either UK or offshore soil. Nor would our member companies.”

Computer Weekly contacted the FCSA for further information about its decision to reword the Charter, but was told the organisation has no comment to make at this time beyond what is already in the public domain.

Crawford Temple, CEO of Professional Passport, a company that provides compliance assessment services to umbrella companies, told Computer Weekly it was good to see the FCSA clarify the contents of its Charter.

“We’re pleased to see that the FCSA has clarified its position on offshore schemes and cleared up the confusion that arose. It is important that the industry works together to promote good working practices throughout the supply chain and stamp out any malpractice,” said Temple.