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Freeports

19 January 2021

Following the UK’s departure from the EU, the Government sees the establishment of new Freeports as a means of boosting trade, jobs and investment across the UK. 

Areas given Freeport status will benefit from a wide package of tax reliefs, simplified customs procedures, streamlined planning processes to boost redevelopment, and government support to promote regeneration and innovation. 

The introduction of Freeports will have significant implications for shipping and logistics firms, and open up new opportunities for companies with import/export operations. 

Latest news on UK Freeports
What are Freeports?
How will UK Freeports work?
Taxes and duties
BDO’s position on Freeports

Latest news on UK Freeports

Government clarification on Freeports

On 18 January, the Government published a Q&A document clarifying a number of issues around Freeports. The document seeks to answer many of the questions that the Government has received from stakeholders since launching the Freeports bidding process. The topics covered include policy and objectives, timings and assessing bids.

The deadline for submitting applications to become a Freeport remains 5 February 2021.

The Government’s full Freeports Q&A can found here

Freeports bidding process opens

On 16 November 2020, the Government opened the bidding process in England to establish at least seven new Freeports. 

Sea, air and rail ports from across England are encouraged to apply, working in tandem with their local leaders, businesses and others in their communities.

Bidders will need to submit bids by Friday 5 February 2021. All bids will be judged by an assessment panel in March 2021, with decisions made in Spring 2021. The first Freeports will be open for business in 2021. 

The Government hopes to have 10 Freeports operating across the whole of the UK, and will work with the devolved administrations to establish at least one Freeport in Scotland, Wales and Northern Ireland.

What are Freeports?

Freeports operate as secure customs zones, usually located at ports or airports, where business can be carried out inside a country’s land border, but where different customs rules apply. 

Freeports around the world offer a mixture of customs flexibilities; reliefs from duties, import taxes and administrative burdens; tax measures to incentivise private investment; regulatory flexibilities; and investment in infrastructure.

The UK Government has opted for a bespoke Freeport model which aims to achieve three objectives:

  • To establish Freeports as national hubs for global trade and investment across the UK
  • To promote regeneration and job creation
  • To create hotbeds for innovation

To meet these objectives, the government is proposing to combine five sets of measures – customs, tax reliefs, planning, regeneration funding, and innovation. 

How will UK Freeports work?

The UK Freeport model will require a primary customs site designated in or near a seaport, airport or rail port within which the customs benefits will apply. Additional Freeport subzones may also be permitted to enable multiple sites to benefit from the Freeports customs model.

Freeports will also include a defined site within which Freeport tax reliefs will apply – operating in a similar way to existing Enterprise Zones. The purposes of the reliefs will be to incentivise business investment in capital assets and employment. However, clear eligibility criteria will apply to prevent tax evasion and avoidance.

Where will the UK Freeports be sited?

Freeport status will be conferred following a competitive bidding process. 

Bidding coalitions, made up of ports, airports, local and international businesses, academic institutions, local authorities, mayoral combined authorities and Local Enterprise Partnerships are invited to develop proposals setting out why a Freeport is right for their area, how they will utilise the measures, and how they will deliver and run a successful Freeport. 

The final locations of the Freeports will only be confirmed at the conclusion of this bidding process. However, to date, there has been interest from potential bidders from across a number of UK regions including:

North East

North

West

East

South East

South West

Yorkshire and Humber

Central

Wales

Scotland

Tees Valley

Peel Combined Freeport

Freeport East, Felixstowe and Harwich

 

Global Trade and Innovation (GTI Zone Freeport), Dover

Bristol Freeport Zone

Doncaster Sheffield Airport

East Midlands Airport

Milford Haven

Cromarty Firth

Port of Tyne

Carlisle and Borderlands Combined Freeport

 

Thames Freeport

Exeter Airport Freeport

Humber Ports

 

 

 


Tax and duties

Freeports and Customs

Businesses operating within Freeport customs sites will receive tariff benefits, including duty deferral while the goods remain on site, and duty inversion if the finished goods exiting the Freeport attract a lower tariff than their component parts. 

Subject to the UK’s trade agreements, businesses may also be able to take advantage of customs duty exemption on goods that are imported into a Freeport, processed into finished goods and subsequently re-exported. 

They will also be able to suspend import VAT on goods entering the Freeport. In addition, businesses operating in Freeports will be authorised to use simplified import procedures. This model expands on existing customs facilitations and procedures available to business.

Freeports and Tax

Businesses will be able to claim reliefs from key business taxes within the bounds of a Freeport. The current proposals include:

Stamp Duty Land Tax (SDLT) Relief The government intends to offer SDLT relief on land purchases within Freeport tax sites in England where that property is to be used for qualifying commercial activity. It is intended that this relief will apply from 1 April 2021 until 31 March 2026. 

Enhanced Structures and Buildings Allowance (SBA) The government intends to offer an Enhanced SBA rate, providing enhanced tax relief for firms constructing or renovating structures and buildings for non-residential use within Freeport tax sites. 

Enhanced Capital Allowances (ECA) The new ECA the government intends to offer in Freeport tax sites will provide enhanced tax relief for companies investing in qualifying new plant and machinery assets. This accelerated relief is intended to allow firms to reduce their taxable profits by the full cost of the qualifying investment in the same tax period the cost was incurred. Firms investing in the Freeport tax site would be eligible to benefit from the relief where the qualifying investments are incurred on or after 1 October 2021 until 30 September 2026. 

Employer National Insurance Contributions (NICs) Rate Relief The government intends to enable employers operating in a Freeport tax site to pay 0% employer NICs on the salaries of any new employee working in the Freeport tax site. This 0% rate would be applicable for up to three years per employee on earnings up to a £25,000 per annum threshold. An employee will be deemed to be working in the Freeport tax site if they spend 60% or more of their working hours in that tax site. The relief is intended to be available for up to 9 years from April 2022. Partway through, the government intends to review this relief and decide whether it should be continued up to its end date in 2031. The relief would end no earlier than April 2026 and would therefore be available for a minimum of four years. 

Business Rates Relief The government intends to offer up to 100% relief from business rates on certain business premises within Freeport tax sites. This relief is intended to be available to new and certain existing businesses in Freeport tax sites in England from 1 October 2021 and would apply for 5 years from the point at which the beneficiary first receives relief. The point at which a business first receives relief must be by 30 September 2026. The cost of the relief will be funded by central government. It is intended that newly formed businesses and businesses relocating to a Freeport will be eligible for the relief. 

Local Retention of Business Rates It is intended that the council or councils in which the Freeport tax sites are located will retain the business rates growth for that area above an agreed baseline, following the example of Enterprise Zones. This will be guaranteed for 25 years, giving councils the certainty they need to borrow to invest in regeneration and infrastructure that will support further growth. 

Declarations

Under the proposed model, declaration requirements would be simplified to reduce the administrative burden of moving goods into a Freeport. A reduced amount of data would be provided using existing processes (form C21) to allow goods to be cleared to leave a port and businesses would need to complete a declaration into their own commercial records recording information about the goods that will be brought in to the UK. They would also need to provide adequate information to the Freeport operator’s records management system so that a central record of all goods in the site can be maintained.

When businesses wish to remove goods from the site, they would need to complete normal import declarations if releasing the goods for sale on the domestic market or export declarations if exporting the goods for sale overseas. It will be possible for goods to be declared to another customs procedure, such as transit, on leaving the Freeport site.

Businesses bringing goods into the UK via a UK port also need to submit Entry Summary Declarations for safety and security purposes before arrival and submit manifest information to notify the customs authority that the goods have arrived at the port. These processes for goods entering a port will not differ in respect of Freeports.

BDO’s position on Freeports

Michael Simms - Partner

We welcome this initiative which should help encourage new investment, innovation and employment. We may also see positive knock-on impacts for local economies in areas where Freeports are located.

As the UK enters a new post-Brexit trading era, businesses with international supply chains will need to rethink their logistics planning.


Depending on the final customs and tax benefits on offer, Freeports could be a very attractive option for some, helping businesses to realise new international trading opportunities for the longer term.

The timetable is tight. Elements of the bidding process and, in due course, the requirements for successful bidders are complex. Our expert advisors can support bidders and in particular our tax teams have significant experience in advising on issues relevant to Freeports such as customs duty, VAT and other indirect taxes, employment taxes and direct taxation.

Clearly, the roll-out of this policy will have significant implications for the maritime sector, particularly with respect to competition between Freeports and non-freeports, so shipping companies will need to keep a very close eye on developments.

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