On 16 November 2020, the Government opened the bidding process to establish what it describes as “new, innovative Freeports that will boost the economy, create thousands of jobs and turbo-charge post-Brexit trade”. A number of points of detail were missing from the consultation response document published last month and some of these points have been included in the bidding prospectus. This article provides an update on the tax and customs aspects of the proposals now we have this additional information.

We reported on the new plans for Freeports outlined by the Government last month in Tax Matters Digest on 19 October 2020. The bidding prospectus was then published on 16 November, providing further information including the points below.

Customs

Details of the ‘duty-free’ operation of Freeports are included in section 3.4 of the bidding prospectus. Businesses within the Freeport will gain duty benefits currently available but without the individual application/authorisation processes.

Freeport Operators will be required to hold particular authorisations. That process has not yet been finalised and the prospectus only outlines the expected requirements which will be based on existing Authorised Economic Operator security and safety (AEOS) standards. Operators will also need to designate part of the customs site as a temporary storage area, as per the standard UK customs import rules. The document states that HMRC will provide detailed guidance on the authorisation requirements in due course.

What is clear is that the Freeport Operator will be jointly and severally liable for any duty payment where there is a breach of conditions. The operator will be responsible for security of the perimeter and effective ‘stock control’ within the site and will have to maintain an IT system that meets the requirements of HMRC/Border Force in terms of ‘Inventory control’.

Tax

Further information on tax included the following:

• Stamp duty land tax (SDLT) relief will apply in England for land purchases from April 2021 until 31 March 2026 (the position for Scotland and Wales is still outstanding). However, this relief could be clawed back where land is not used for a qualifying purpose within a three year ‘control period’, or earlier if the land is sold;
• An enhanced structures and buildings allowance (SBA) is to be offered at a rate of 10 percent of the cost of investment every year for 10 years. This enhanced rate will apply where qualifying expenditure is incurred, all associated construction contracts are entered into and the asset in question is brought into qualifying use between 1 April 2021 and 30 September 2026;
• 100 percent enhanced capital allowances (ECA) will be available for companies investing in new qualifying plant and machinery where incurred on or after 1 October 2021 until 30 September 2026. Assets eligible for relief must be for use primarily within defined Freeport tax areas, and balancing charges will exist in some situations for subsequent sales or changes in use;
• Employers should be able to pay zero percent employer national insurance contributions (NICs) on the salaries of any new employee working in the Freeport tax site. This zero percent rate would be applicable for up to three years per employee on earnings up to a £25,000 per annum threshold and is expected to be available for up to nine years from April 2022. An employee will be deemed to be working in the Freeport tax site if they spend 60 percent or more of their working hours there; and
• There is expected to be 100 percent relief from business rates on certain business premises within Freeport tax sites in England (the position may be different in other areas of the UK). It will be available to both newly formed businesses and businesses relocating to a Freeport. Partial relief should also be available to certain existing businesses in Freeports that undergo expansion. The relief should apply from 1 October 2021 for five years from the point at which the beneficiary first receives relief, which must be by 30 September 2026.

The Government has requested bids be submitted by Friday 5 February 2021, with decisions then being made in spring.

For further information please contact :

• Lorenzo Rossetti