The Spring Budget delivered some very positive news for the North, Teesside and Darlington in particular, with the announcement of the Teesside and Humber Freeports, a UK infrastructure bank in Leeds and a Northern Economic Campus in Darlington, which includes the relocation of the Treasury and DiT to the region.
The Teesside Freeport, which is one of eight announced for the UK, is expected to bring benefits for business and the local economy that extend beyond the local region, including the potential to deliver up to 18,000 skilled jobs over the next five years. It covers 4,500 acres in total and includes the Teesworks site, Wilton International, Teesside International Airport, Port of Middlesbrough, Port of Hartlepool and Tees Dock.
Image courtesy of Tees Valley Combined Authority
It is worth remembering that the economic benefits and opportunities will not just be limited to the Freeport itself, as it will have a significant dependence on supply chain businesses and a need for enhanced transport links and connectivity. The employment drive should also fuel housing development and social infrastructure to support this.
The Freeport initiative is not a completely new concept for the UK, having been mentioned previously in various guises as a tool to facilitate trade and ease the impact of Brexit. They are anticipated to be operational across England by late 2021.
What is a Freeport?
Freeports are specific geographical areas designated as secure customs zones where, from a VAT and duty perspective, any business carried out is effectively considered as outside the borders the UK. Basically, it means that different customs rules apply.
They are usually located near ports or airports and operate with the objective of providing relief from import taxes and duties, reducing administrative burdens and tariff controls and easing tax and planning regulations.
Businesses can therefore trade flexibly and with administrative simplifications within the Freeport, whilst operating under VAT and duty suspension.
The government’s plan is to incentivise businesses to locate the manufacturing and processing of imported goods within Freeports. These businesses will benefit from simplified customs procedures and reduced administrative costs so that Freeports will become international hubs for manufacturing and innovation, fuelling economic growth.
What are the key benefits of freeports?
Within a Freeport, businesses can defer the payment of taxes until their products are moved elsewhere. They can even avoid them altogether if they are able to bring in goods to manufacture on site or to store, before re-exporting them.
The key benefits therefore are:
What Customs benefits are available?
Businesses operating within Freeport customs sites will receive tariff benefits, including duty deferral while the goods remain on site. They will also benefit from duty inversion if the finished goods leaving the Freeport are subject to a lower tariff than their constituent parts.
Image courtesy of Tees Valley Combined Authority
Businesses operating within Freeports also enjoy the benefits of simplified import procedures and suspended import VAT on goods entering the Freeport.
Finally, businesses can benefit from customs duty exemption on goods that are imported into a Freeport, processed into finished goods and subsequently re-exported, subject to the UK’s existing trade agreements.
What tax incentives are available?
There are also some tax advantages available to businesses who invest within Teesside Freeport.
Business Rates Relief
Some business premises within the Freeport tax site will benefit from up to 100% business rates relief for a five year period. This is available to business which relocate to the Freeport between 1 October 2021 and 30 September 2026. The relief runs for five years from the date of relocation.
Enhanced Capital Allowances
There is enhanced tax relief available for companies who invest in qualifying new plant and machinery assets which will allow firms to reduce their taxable profits by the full cost of the qualifying investment. This accelerated relief is intended to allow firms to benefit within the same tax period as the cost was incurred. The 100% relief can be pro-rated for assets that are used outside of the Freeport for a proportion of the time in use.
Enhanced Structures and Buildings Allowance
Businesses can benefit from an enhanced rate of Structures and Buildings Allowance on the construction or renovation of non-residential structures and buildings in the Freeport. The usual 3% rate is uplifted to 10% for buildings brought into commercial use by 30 September 2026.
Exemption from Stamp Duty Land Tax
There is an exemption from SDLT in respect of purchases of land and buildings for commercial use where the land is at least 90% in the Freeport. There is pro-rata relief for land which is between 10% and 90% in the Freeport. The relief is available to owner occupiers, developers and landlords.
Employer National Insurance Contributions Rate Relief
Businesses operating in the Freeport tax site will pay 0% National Insurance Contributions for up to the three years per employee on earnings up to a £25,000 per annum. Employees must spend at least 60% of their working hours in the Freeport. The relief will apply for employees commencing work on or after 6 April 2022 and will last until at least 5 April 2026. Employees must not have worked for the employer for at least two years before starting work.
What happens next?
Final plans for the Freeport site, including confirmed designations of customs zones and tax zones, are currently being agreed with government. We anticipate that the Freeport site will go live in October 2021. In the meantime, we will continue to update this page with any new announcements. If you have any queries at all in relation to Freeport’s don’t hesitate to contact our team here.
Further information on the Teesside Freeport is available from the Tees Valley Combined Authority here:
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