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Freeports & their significant tax benefits

Date: August 24, 2021

Freeports

In March 2021, the government announced 8 freeport tax sites situated across England.

The UK Government is hoping that the reintroduction of freeports will help to regenerate deprived areas by bringing economic opportunities by the way of boosting jobs, trade and investment in these areas and the UK. It is expected that the introduction of these freeports will create around 170,000 jobs in the next five to 10 years.

What Are Freeports

Freeports are specified areas, usually located around shipping ports or airports, and they operate as a secure custom zone. They are designated locations that have extra government support by the way of various tax breaks and other benefits.

The UK Government has announced the freeports within England will be areas located within the following locations:

East Midlands Airport
Felixstowe and Harwich
Humber region
Liverpool City region
Plymouth
Solent
Thames
Teeside

The freeport areas are restricted to specific plots of land within the above regions and can be located in different areas in the region. For example, for the Humber region, this will cover an area of 45km radius taking in the ports of Hull, Grimsby, Immingham and Goole.

In these specified areas, firms will be able to import goods from overseas without paying tariffs, manufacture goods and then either export or deliver to the domestic market. If goods are delivered elsewhere within the UK, taxes are then paid. If these goods are exported overseas, they are exempt from tariffs being charged.

Aside from the goods being imported and exported without tariffs, there are a number of additional benefits for companies operating within the freeport zones. These include:

Land purchased for qualifying use in any of the freeport zones will be free of SDLT until 30th September 2026.
Employers operating in a freeport tax site will pay 0% employer NICs (Class 1) 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 £25,000 per annum threshold from April 2022.
The government intends to offer up 100% relief from business rates on certain business premises within Freeport tax sites until 30th September 2026. Relief will apply for five years from the point at which each beneficiary first receives relief.
Regeneration and infrastructure: successful bidders will be able to access a share of £175m of seed capital funding.
Reduced paperwork costs.

Capital Allowance Benefits Within Freeports

For expenditure incurred on plant and machinery (“P&M”) up to 30th September 2026, a 100% enhanced capital allowance deduction will be available (usually 18%/6% per annum, unless annual investment allowances are available) as long as the P&M is unused and is not second-hand and is for the use primarily within the freeport zone. If the P&M subject to enhanced capital allowances starts to be used primarily outside of the freeport zone within five years from when the asset was brought into use, notice must be given to HMRC within three months and there will be a clawback of the enhanced capital allowances claimed.

For expenditure that would normally qualify for Structures and Buildings Allowances, there will be an increase of the capital allowances available to 10% per annum (usually 3% per annum) on a structure that is brought into use in the designated freeport zones up to 30th September 2026.

The company must be within the charge to UK Corporation Tax to be able to claim the enhanced capital allowances deductions.

Enterprise Zones

Enterprise zones are similar to freeports in that they are designated locations across England and their purpose is to provide tax breaks and government support. Again, as with freeports, these were introduced to help local communities attract business and create jobs. Enterprise zones were introduced by the UK Government in 2012, and between 2012 and 2017, 48 enterprise zones have been created across England.

The benefits of a business operating within an enterprise zone were given on a zone by zone basis, rather than a unified list of benefits – like with the freeports. Some of the enterprise zones attracted 100% enhanced capital allowances on plant and machinery expenditure, whereas other benefits included business rate relief and funding initiatives.

Enterprise zones are now being phased out. For the new zones starting in April 2016/April 2017, businesses must be located in the zone before March 2021/2022 to qualify for reliefs.

To Summarise

Freeports are a key part of the Government’s economic strategy, with the devolved nations also considering their approach. In the wake of both Brexit and the COVID-19 pandemic, getting it right has never been more critical, and as businesses of all shapes and sizes look to carve a new path to securing a stable future, they may be considering the opportunities a freeport presents. In doing so, they will be making an assessment on the pros and cons, but how many are overlooking the capital allowances benefits as a part of that assessment?

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