Last reviewed 7 October 2021
Following Brexit the Government has decided to reintroduce Freeports with the aim of creating over 80,000 jobs and help increase trade in designated areas.
Consequently, the Government is providing £175 million in seed capital that is to be provided on a matched or part matched basis. This funding will be provided where there is investment in the regeneration of sites and qualifying infrastructure. The Freeports will also benefit from a streamlined planning process to aid brownfield site development and regulatory flexibility for some activities.
Freeports have been created at different times and for different purposes. The last iteration in the UK was to promote business and employment in the 1980s. Six freeport were created but were not as successful as predicted. This was blamed on the lack of government incentives and also strict regulation imposed by the EU (which was responsible for customs matters at that time).
There are two main elements that need to be considered in respect of Freeports, the operators of the Freeport and the user of the Freeport.
Objective of the Freeport
The objective of Freeports is to provide an area free from customs duties. Consequently, goods that are imported will not be subject to customs duty unless and until it is moved into the UK. If the goods are re-exported outside the UK there will be no UK duty payments.
As an example, the writer helped a business that set up in a Freeport in the 1980s. This company imported very fine needles from Japan into the UK. No duty was paid. The needles were fitted with a part and then re-exported to be sterilised and packaged. The majority of the needles were then sent to the USA and were not subject to UK duty. A few were imported into the UK and duty was paid on these items.
The locations chosen for the initial eight free ports are:
Plymouth — Devonport
Solent — Southampton Port/Southampton Airport/Portsmouth Port
London — London Gateway, Tilbury Port
East — Harwich International Port & Felixstowe
East Midlands — East Midlands Airport
Humber — Immingham/Hull/Grimsby/Goole
Liverpool — Liverpool Waters/Wirral Waters
Teesside — Teesport/Hartlepool/Teeside Airport.
Locations in Scotland, Wales and Northern Ireland are still being considered.
A Freeport must be within a 45km diameter outer perimeter, although extensions will be permitted if a special case can be demonstrated. The actual Freeport can only be 600 hectares within that outer perimeter and it is within this zone that the tax incentives will apply.
Benefits for operators
Various incentives are being provided up until 30 September 2026. These are:
no stamp duty land tax on land purchased for a qualifying use in the Freeport zone
100% enhanced capital allowances on plant and machinery
10% structures and buildings allowances (usually this is 3%)
business rates relief for five years for all new businesses and certain existing businesses where they expand.
The operator is responsible for the security of the site and must keep records of goods moving in, out and around the Freeport.
Benefits for users of the Freeport
Businesses operating in the Freeport will benefit from a number of customs reliefs. These include.
Relief from import duties and import VAT for goods imported unless and until the goods are moved out of the Freeport into the UK.
No import duties or import VAT on items processed into finished goods that are exported out of the UK unless the exporter chooses to utilise Duty Drawback Prohibitions in respect of a free trade agreement.
Goods imported will benefit from simplified customs declaration requirements. The amount of data to be provided is reduced and part of the declarations can be made utilising the businesses’ own commercial records.
Utilising lower duty rates where manufactured goods have a lower duty rate than that applied to component parts or raw materials. The materials can be imported duty-free into the Freeport and when the manufactured goods are moved into the UK market, the lower duty rate applicable to the manufactured goods will apply (if this is lower than the duty on the materials imported).
The second relief needs careful consideration. Some countries where the UK has free trade agreements (such as Canada, Mexico and Singapore) apply nil or reduced duty rates to UK goods, but not where the goods have benefited from duty reliefs in the UK (such as the Freeport duty reliefs). Thus, the Freeport operator can choose not to claim the Freeport duty relief if it wishes to claim the reduced duty rate when the goods are exported to these countries.
Where goods from the Freeport are moved out of the Freeport into the UK, the usual import declaration will be required to be completed.
Eligible employees based in Freeport will be relieved from National Insurance Contributions from April 2022. This relief will be available until April 2026 but may be extended to 2031. Employer NIC will be charged at 0% for three years per employee on earnings of up to £25,000 per annum. These reliefs will also be available to the operators of the Freeport. Employees will be regarded as working in the Freeport if they spend 60% of their time in the Freeport.
As would be expected there are strict regulations that apply to the operating of a Freeport. The Freeport site needs to be enclosed and entry and exit points controlled. Operators are expected to be able to provide detailed information regarding goods entering and leaving the Freeport and users of the site and comply with HMRC’s record-keeping requirements. The operator also needs to ensure that no one operates in the site if they do not have the appropriate notifications to operate or undertake prohibited activities. HMRC need to provide permission before the construction of new buildings and HMRC needs to be informed of any breaches of rules. The operator needs to control and regulate goods moving in and out of the Freeport. HMRC have outlined the detailed requirements for operating in a Freeport. This describes the records that need to be kept, security requirements and staff recruitment requirements.
Businesses that import, process and re-export may consider a Freeport to give a considerable advantage, reducing duty costs and administration. Other businesses may also utilise the Freeports as way of deferring the due date for duty payment when importing goods into the UK or reducing the duty liability. Potential operators can register their interest with HMRC to be a Freeport customs site operator.