Freeports – Chancellor reveals eight UK locations

Whilst the UK prepared for Brexit during its transition period last year, a consultation and bidding process began, with a view to the reintroduction of Freeports in the UK. There were seven between 1984 and 2012 but the Chancellor today revealed the location of the eight successful bids which will bring them back. They should help to alleviate Brexit issues for some, as well as assisting the Government in its strategy of ‘levelling-up’ by spreading the location of these sites across England. Scotland, Wales and Northern Ireland are likely to announce similar plans.

The eight sites will be:

• East Midlands Airport;
• Felixstowe & Harwich;
• The Humber region;
• Liverpool city;
• Plymouth;
• Solent;
• Thames; and
• Teesside

The ultimate intention of the Freeports will be to facilitate global trade and investment, to regenerate areas, to provide job opportunities and to create ‘hotbeds’ for innovation. They aim to achieve this as a result of a number of indirect and direct tax reliefs and incentives for those setting up and trading within the Freeports.

So what tax benefits are there?

Freeports are not a new concept. There are around 80 within the EU alone and, as mentioned, we used to have them here in the UK. Essentially a freeport allows goods to be physically imported into the country but without any UK duty or VAT being charged, until and only if, the goods leave the freeport and enter free circulation in the UK.

Import declarations are also simplified. If the goods are re-exported before entry to the UK market, no UK VAT or duty is payable. In addition, there can be a benefit of manufacturing products within the freeport because if the finished goods attract a lower duty rate than the materials originally imported into the freeport, a lower duty rate adjustment can be achieved. Hence a freeport has the benefit of effectively acting outside the usual red tape of the customs border with the EU and rest of the world, helping with the duty cashflow by delaying payment, and potentially in avoiding the need to pay it at all, until of course the goods land in another country.

There is no doubt that the Freeport concept is not just a way to mitigate Brexit issues. It is key to the Government’s plans to boost the economy. The list of direct tax benefits from freeports is significant:

• Enhanced capital allowances (100% on all qualifying spend on plant and machinery);
• 10% Structure and buildings allowances;
• No SDLT on purchases or leases;
• Employers NIC holiday on wages paid to employees within the Freeport

Whilst the reliefs are significant, there is likely to be equally significant anti-avoidance legislation to ensure they are properly targeted. For example, will there be limits on whether a business established in a Freeport can use staff or equipment outside the Freeport? There can also be restrictions on other tax reliefs such as R&D tax credits, where the business has been given government subsidies or incentives. Again, we will need to see the details to identify whether this could be an issue for businesses.

There is also evidence from overseas that because of the benefits of the areas, Freeports can attract ‘dirty’ money. We will wait to see what regulations will be introduced for this, but from the consultation process it appears that operators of Freeport customs site will need to control procedures tightly as they will be held jointly liable with the declarant for unpaid duties and VAT, for example.

There are more incentives to the Freeport plans, however, that will incentivise businesses to set up a hub and trade within them.

We will be regularly updating the Budget pages of our website. If you would like to discuss the implications, please don’t hesitate to get in touch. Alternatively, book your place on our Budget question time webinar on Friday 5 March 2021 to find out more.