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Freeports

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The Chancellor announced in his budget on 3 March 2021 that eight new freeports would be created in England in the hope that they would provide a boost to trade, jobs and investment following the UK’s departure from the EU.

The government’s bidding prospectus described freeports as ‘a flagship government programme that will play an important part in the UK’s post-COVID economic recovery and contribute to realising the levelling up agenda, bringing jobs, investment and prosperity to some of our most deprived communities.’

The freeports will be located at East Midlands Airport, Felixstowe and Harwich, Humber Region, Liverpool City Region, Plymouth, Solent, Thames and Teesside. Businesses in these locations (which can stretch up to 45km from ports) will gain from significant customs and tax benefits. The government’s vision is for the UK’s freeports to become ‘international hubs for manufacturing and innovation’.

Formal designation of the freeports, bringing into effect the benefits outlined below, is expected in late 2021 or in 2022.

Customs benefits

Businesses operating within freeports will gain 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. Goods imported into the freeport area and then exported without having moved to any part of the UK outside the freeport might escape tariffs completely.

Tax benefits

Businesses will also benefit from a number of tax advantages, including:

  • Full business rates relief for businesses new to the area
  • Enhanced Structures and Building Allowance

An enhanced SBA rate is expected to be available for businesses incurring qualifying expenditure on construction of new, or renovation of existing, non-residential structures and buildings within Freeport tax sites

  • Stamp Duty Land Tax

To further reduce the costs of investing in land and buildings at Freeports sites, a relief from Stamp Duty Land Tax (SDLT) has been announced.  The policy paper confirms that it will apply to qualifying transactions with an effective date falling on or between the date of designation of the Freeport site and 30 September 2026

  • Employer National Insurance Contributions Relief

It is the Government’s intention to allow employers operating in a Freeport to pay 0% employers NICs on the salaries of any new employee (on earnings up to £25,000 per annum) for a period of three years

  • Enhanced Capital Allowances

Businesses will receive enhanced tax relief when investing in qualifying plant and machinery, and again this will be available until 30 September 2026

Potential disadvantages of freeports

There is some concern that freeports will not actually encourage new businesses to the UK but will instead simply encourage existing businesses to relocate to take advantage of the tax benefits. However, only time will tell how many new businesses seize the opportunities available to them.

Edward Ellis Corporate Restructuring Senior Manager

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