Consultation on plans for 10 freeports

The government is consulting on plans to create up to 10 freeports across the UK, with tariff flexibility, customs facilitations and tax measures designed to encourage global trade and attract inward investment post-Brexit

The proposed freeports will have different customs rules than the rest of the country and are intended to act as national hubs for global trade and investment across the UK, while also promoting regeneration and job creation and providing hotbeds for innovation.

The consultation forms part of the policy development process, with the government also saying it intends to work with devolved administrations to develop proposals to allow freeports to be created in Scotland, Wales and Northern Ireland, in addition to those in England.

It states that the core customs and tariff benefits the government proposes to offer to businesses bringing goods into in a freeport site include duty suspension, duty inversion, duty exemption for re-exports and simplified customs procedures.

This means there would be no tariffs, import VAT or excise to be paid on goods brought into a freeport from overseas until they leave the freeport and enter the UK’s domestic market.

If the duty on a finished product is lower than that on the component parts, a company could benefit by importing components duty free, manufacture the final product in the freeport, and then pay the duty at the rate of the finished product when it enters the UK’s domestic market.

A company could also import components duty free, manufacture the final product in the freeport, and then pay no tariffs on the components when the final product is re-exported. The government says it intends to introduce streamlined procedures to enable businesses to access freeports.

Regarding the tax arrangements for freeports, the consultation suggests these will be modelled on the experience of existing enterprise zones. These currently benefit from one of two tax incentives. 

There is a business rates discount worth up to £55,000 per year for five years (£275,000 in total) for each new business starting up or relocating to the enterprise zones, while for zones located in certain areas, there are enhanced capital allowances for new companies making new investments in plant and machinery.

As well as extending similar reliefs to freeports, the consultation states the government is considering changes to stamp duty land tax, research and development tax credits, employer National Insurance Contributions, and facilitative solutions on VAT and excise duties for goods within freeports.

Any incentives offered in a freeport would need to be tested against a number of stated objectives. These are creating additional economic activity and investment, encouraging employment in the area, stimulating clusters of innovation, and minimising any routes whereby tax avoidance or evasion could take place if, for example, reliefs are claimed on activities that have not actually taken place in the freeport area.

The consultation is seeking views on such changes and says the government is particularly interested in policies that support them without displacing activity from other areas of the UK.

As part of this, it will consider what mechanisms are needed to ensure tax incentives in freeports are effective, for example by setting time limits on tax reliefs.

The consultation also asks for input on a number of other issues, including changes to planning regulations, how the bidding process for developing a freeport will be handled, regeneration and governance.

The consultation closing date is 13 July, extended due to covid-19 pandemic. The original plan was to close the consultation for comment on 20 April.

HMT Freeports Consultation

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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