New Freeports Bring Investment Opportunities And Tax Breaks, But Will They Support The Government’s Levelling Up Agenda?

New freeports bring investment opportunities and tax breaks, but will they support the Government’s levelling up agenda? Jackie Hall Jackie, a tax partner and technical officer, covering private client and employment taxes at RSM, answers the question.

Following the UK’s exit from the EU and the Government’s announcement of plans to create up to ten new freeports across the UK, the March 2021 Budget gave details of the of the first ten proposed sites, some of which are now open for business. By re-introducing freeports the Government aims to create national hubs for global trade, investment and research and development. Seven freeports had previously operated in the UK, the last five of which ceased operating in 2012 following a decision by the then (also) Conservative Government to scrap them. The Government now believes that freeports will create high-skilled jobs, both in and around Freeports, building sustainable economic growth and regeneration in the areas that need it most.

Freeports are designated areas benefitting from specific tax rules aimed at incentivising investment. The direct tax incentives applying to these new freeports include:

A National Insurance contributions (NIC) holiday for employers. Relief from employer’s NIC will be available to eligible employers on up to £25,000 of earnings per eligible employee per annum. This applies a zero rate of employer’s contributions on the earnings of new employees - but this only applies from April 2022, and to new hires who spend 60 percent or more of their working time within the freeport tax site. The relief is restricted to 36 months of employment of the eligible employee.

A relief from stamp duty land tax on purchases for a qualifying use within the freeport tax site. This relief is available to qualifying transactions with an effective date from the date of freeport tax site designation until 30 September 2026.

Enhanced capital allowances (ECA) for qualifying expenditure on plant and machinery for use within the freeport tax site. The ECA will be 100 per cent of qualifying expenditure and will be available from site designation until 30 September 2026.

An enhanced structures and buildings allowance (SBA) will be available on qualifying expenditure for the construction of new, and renovating of existing, non-residential structures and buildings within the freeport tax site. The enhanced SBA of 10 percent will be available for qualifying assets brought into use between site designation and 30 September 2026.

Freeports also benefit from simplified import procedures. Generally, customs duty and import VAT on goods brought into freeports from overseas are delayed until they enter the UK market. It is therefore possible to import raw materials for processing into finished goods within the freeport, then export those finished goods without incurring duty or VAT.

There is also a zero-rate of VAT which applies while the goods are in the free zone, either to the transfer of goods from one authorised freeport business to another, or to the provision of services performed on, or in relation to, the goods by a freeport authorised business.

However, a recently announced VAT exit charge can apply where goods which have benefitted from this zero-rate are imported in the UK market rather than being re-exported. The VAT exit charge must be paid by the receiver of these zero-rated goods or services if they do not make an onward supply of the goods within three months of importing them into the UK, or if they breach the rules of the freeport customs special procedure. The exit charge can then be recovered as input tax subject the normal rules.

It is disappointing to note that, at the time of writing, all proposed freeports are situated in England (many in the South), with none currently designated in Scotland (after the UK and Scottish Governments failed to agree on a common approach). With no firm proposals put forward by the Government for a freeport in Wales, or in Northern Ireland (it’s complicated!) one wonders just how much freeports will ultimately contribute to the Government’s ‘levelling up’ agenda.


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