The government has selected eight new freeports in England as a means to boost trade, jobs and investment across the country. The special taxation and customs rules for the freeports will help businesses develop new facilities and operations to trade and manufacture goods more cost-effectively, countering the effects of other complications such as Brexit and Covid-19. Early deliverability of opportunities for new businesses is key; Solent Gateway Ltd at Marchwood Port, Southampton will be leading the way with 64 hectares of new space starting to come available from as early as Autumn 2022.
What is a freeport?
A freeport is an economic zone, typically encompassing a freight seaport or airport, where typical VAT and customs rules don’t apply. This makes it cheaper and easier for raw materials or components to be imported to manufacturers, processed into manufactured goods and then imported into the UK or exported. They can also have simpler planning rules, helping businesses to quickly build or adapt premises in the area.
The locations of England’s eight new freeports were announced by the Chancellor at the Budget in March 2021:
- East Midlands Airport
- Felixstowe and Harwich
- Humber region
- Liverpool City Region
The eight freeports will create some 170,000 jobs in the coming five to ten years. Within the Solent Freeport, Marchwood Port operated by Solent Gateway Ltd has been designated as both a customs site and tax site.
What are the tax incentives of freeports?
Within a freeport customs site, there are two principal benefits: firstly, Customs Duty and Import VAT are only charged on goods if and when they are released from the freeport into the UK. This enables businesses to process, store and transport goods with greater flexibility, giving them a cash flow benefit; secondly, duty paid can be on the final product rather than component parts if lower, also reducing the tax paid as raw materials normally have a higher duty rate than the manufactured or processed goods. Freeports can help businesses to improve processing time due to reduced transportation.
Freeport tax sites will benefit from greater capital allowances when purchasing plant and machinery or building new structures. Companies will be able to claim 100% enhanced capital allowances on the purchase of new and unused plant and machinery that is incurred for a trade being carried out at the freeport tax site. The purchase will need to be incurred before 30 September 2026 for the item to qualify for this benefit. Plus, qualifying expenditure on structures and buildings within a freeport zone will qualify for Enhanced Structures and Buildings Allowance at 10% per year for 10 years on expenditure incurred before 30 September 2026. This is a significant increase on the current level of 3% per year for 33 years for non-freeport areas. There are also very appealing benefits around national insurance relief for up to 3 years per employee and business rates relief, with new or expanding business being able to claim up to 100% relief for 5 years.
Richard Parkinson, Port Director at Solent Gateway Ltd, comments: “The UK freeports plan is an excellent initiative to incentivise new businesses to set up new operations in freeports – it presents a truly golden opportunity for both UK and foreign businesses. Solent Gateway is unique in its offering as it is both a customs and tax site, with high quality logistic space starting to come available to new businesses from Autumn 2022. In terms of who will benefit most from operating in a customs and tax site such as ours, it is businesses that want to: develop new facilities and operations, thereby benefitting from all the incentives to attract new business; import goods and components to the UK; store goods for as long as they want without facing customs duties after 90 days; and manufacture or assemble products as import duties are paid on final product or component parts when they leave the freeport, whichever is cheaper,. If goods are exported after manufacture inside a freeport, no customs duties will be paid, so I have no doubt that freeports are very attractive to manufacturers.”
He continues: “Any organisation that wants to import, manufacture and export within a customs site will avoid all duties, so that is a great incentive. Any business that wants to store items for more than 90 days will also benefit.”
Solent Gateway is part of the Solent Freeport. Establishing the Solent Freeport will create 52,000 new skilled and semi-skilled jobs, including 26,000 direct jobs in the Solent and 26,000 in the wider UK supply chain. COVID-19 has widened the opportunity gap for these communities and a Solent Freeport provides a once-in-a-generation opportunity to reverse these trends.
The Solent Freeport will also support levelling up across the UK – in particular in the UK’s industrial heartlands of the Midlands and North. The potential of significant government investment in freight links between Southampton and the Midlands will be realised through the connectivity to global markets that the Solent ports provide.
Chris Anderson, Head of Business Development at Solent Gateway Ltd, comments: “Solent Gateway Ltd, located at Marchwood Port, Southampton is one of a very few locations in the UK that is both a tax site and a customs site. We are therefore tailor-made for the development of new facilities for import, manufacturing, assembly, storage, export or delivery into the UK. Marchwood Port is a very high-quality port-centric logistics hub with outstanding sea, rail and road connectivity, and will have 64.3 hectares of new space available for commercial use starting in autumn 2022.”