Are Midlands businesses rethinking investment plans around Freeports?
Tax Partner Chris Bond discusses our recent Rethinking the Economy research, where we asked: is the Government's introduction of regional Freeports likely to change your investment plans?
In the March 2021 Budget, Rishi Sunak announced the locations of the eight Freeports in England, including at East Midlands Airport. Our latest Rethinking the Economy survey of 500 mid-sized businesses has revealed that more than half of Midlands companies (63% in the east, and 60% in the west) say they are changing their investment plans on the back of this.
Chris Bond, Tax Partner, takes a look at why Midlands businesses are reconsidering their investment intentions due to this announcement.
The background on Freeports
Freeports have historically worked as secure customs zones. Found at ports and airports, they enable business to be carried out within the realms of a country’s land border, but through different customs rules.
These are in no way a new initiative; they originally operated between 1984 and 2012, with seven locations including Birmingham, but due to limited success Prime Minister David Cameron opted not to renew their licences.
Their revival comes with a bespoke Freeport model, along with a number of additional tax incentives and reliefs for organisations. These incentives will encourage business investment in capital assets and employment, and ideally this will support the regeneration of underprivileged areas and drive wider economic recovery across the regions.
Of course, organisations will need to plainly demonstrate that they can meet the required criteria in order to benefit from the tax incentives that the Freeports will provide.
Freeport tax reliefs
While the proposals for reliefs from business taxes have yet to be approved the following can be expected:
- Stamp Duty Land Tax (SDLT) Relief – This will be offered on land purchases, on the provision that they will be utilised for qualifying trade pursuits.
- Enhanced Structures and Buildings Allowance (SBA) – The SBA will offer enhanced relief for those firms either constructing or redeveloping structures and buildings for non-residential use.
- Enhanced Capital Allowance (ECA) – This assistance will apply to businesses investing in certified new plant and machinery assets.
- Employer National Insurance Contributions (NICs) Rate Relief – Through this, employers could pay 0% employer NICs on the salaries of new employees, provided they are working in the Freeport tax site for at least 60% of their working hours.
- Business Rates Relief – Newly established businesses and those relocating to a Freeport may be able to gain up to 100% relief from business rates on specific premises.
- Local retention of business rates – Councils will keep the business rates growth for their specific location above an agreed baseline. This would be for 25 years, giving them the assurance they can borrow to fund their local regeneration and infrastructure programmes
On top of financial gains, there are other advantages – such as reduced administration through declaration requirements. Those involved in shipping and logistics look to benefit most, as well as businesses who have import or export operations.
With Freeports promoting new investment, innovation and employment, you might think it would be no surprise that organisations are rethinking their current plans, but we probably would not have expected such a high proportion of businesses to be making decisions based on this at a relatively early stage of the initiative.
This is an encouraging result as it shows the region’s mid-sized businesses are ready to invest in long-term growth for their own businesses and the wider region. This policy could also be one that successfully contributes to the Government’s wider agenda of levelling up.
Read our detailed analysis of the UKs Freeports plans.
If you have any questions or for further information about the tax incentives of freeports, talk to our team today.