Freeports: Any port in a storm

In March this year, one of the first of the government’s promised post-Brexit policies came into being with the announcement of eight newly designated freeports across England. The first list of eight will shortly be joined by a possible further three or sites across the rest of the UK. The confirmed sites are: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.

But what are freeports, and what are they designed to deliver? In short, they are specially designated zones where certain tax breaks and other regulations are in place to encourage investment and trade. And they’re not new: freeports have been around in different forms for centuries – famously in places like Singapore and Hong Kong. The UK had a freeport system in the 1980s, with the last phased out in 2012 amid concerns that they weren’t delivering the intended economic benefit. However, this time is different.

The parameters for the first round of bids stipulated that each proposal must be confined to a geographic radius of 45km and must include:

  • At least one port
  • One primary customs zone;
  • Up to three tax sites of a maximum of 600 hectares;
  • As many secondary customs zones as required.

Under the new, post-Brexit plan, the ports are designed as a boost to international trade in the wake of leaving the EU. The key difference is that they have been designed to address the typical ethical concerns that have followed freeports: there’s a perception that workers’ rights are compromised, and in some models there’s no regulation at all on things like health and safety. In addition, freeports have in the past had a reputation for illicit activity and tax avoidance.

As it stands, the freeports work on a simple principle: goods can be brought into the port declaration- and tariff-free and then processed into a final good and then either pay a tariff on the good sold into the domestic market or export it without paying a tariff.

The ports are to be light in terms of planning, to promote investment and infrastructure building and they will, over time, introduce tax incentives for employment, particularly around National Insurance.

This model tries to balance the usual freedoms with a stronger level of protection. The department in charge, BEIS, says there won’t be any dilution of regulation, but instead will focus on tax, planning and innovation. The government’s intention is to stimulate new investment into areas in need of regeneration, as well as to support the UK’s shift towards a more globally-focused trade policy now that the UK has left the EU.

The government hopes to use the ports attract businesses from all sectors, not just from the usual suspects like manufacturing and logistics. The new iteration of freeports will be – it is hoped – also attract high tech firms and those focused on innovation and high value activities.

There are a whole raft of regulations being drafted, with more information becoming available over time.

Some of the more interesting and beneficial are:

  • An enhanced 10% rate of structures and buildings allowance for constructing or renovating non-residential structures and buildings within freeport tax sites in Great Britain. This means investments will be fully relieved after 10 years compared with 33 years for properties in other locations which only achieve a 3% rate.
  • An enhanced capital allowance of 100% for company investment in plant and machinery for use in freeport tax sites in Great Britain.
  • Full relief from stamp duty land tax (SDLT) on the purchase of land or property within freeport tax sites in England where it is purchased and used for a qualifying commercial purpose.
  • Full business rates relief available to all new business and certain existing businesses that have expanded.

If you’re interested in finding out more about how the UK tax system is evolving to encourage investment, talk to us. And for anything else – whether it’s tax, payroll or accounting and banking  we’re here to help.