Green light for Freeports

Eight sites were chosen out of 40 applications with Humber, Teeside, Thames and Freeport East’s tax sites coming into force last November and December followed by East Midlands, Liverpool City Region and the Solent in March of this year.  The final location, Plymouth, was ratified through legislation, with effect from 04 July 2022.

Scotland are to introduce two "Green Freeports", with their focus more heavily on ESG impacts and how the possible locations would affect change through the bidding process.  Five bids have been recieved by the June deadline vying for the two positions; Clyde Green Freeport, Aberdeen City and Peterhead Green Freeport, Opportunity Inverness and Cromarty Firth, Firth of Forth Green Freeport and Orkney Green Freeport.  Winning bids are expected to be announced this Summer.

Welsh and UK governments also reached agreement in May 2022 to introduce one new Freeport in Wales, with locations yet to start the bidding process.  The options in Northern Ireland are at this time still less developed.

The freeports initiative was launched with much fanfare to encourage investment, innovation, regeneration and development by offering businesses a host of incentives and benefits to become involved.

These include more generous tax reliefs, simplified customs arrangements and wider government support, ultimately aiming to create employment, business expansion and local economic growth.

Some freeports are further along their journey than others. Generally, construction has been slow to start with the first ground broken at Harwich and Felixstowe’s Freeport East in April of this year for a new base for manufacturing, logistics, R&D businesses and SMEs called Gateway 14.

Briefly, the package of measures attached to freeports includes:

• Abbreviated planning requirements with local orders allowing development to be expedited
• Simplified customs arrangements including exemptions and delays on tariff payments
• Retention of 100% of business rates growth above an agreed level for local authorities in freeport tax sites
• Direct access to regulators to allow early engagement
• Up to £25m of seed capital for each freeport
• Stamp Duty Land Tax exemption on land purchased for qualifying use until September 30, 2026

Importantly, eligible businesses in ‘tax sites’ within the wider freeport zones will be able to take advantage of a range of incentives.

This includes zero employer National Insurance Contributions on new staff, subject to time limits and thresholds, as well as up to 100% of business rates relief.

As well as temporary enhanced rates for capital allowances including both Plant & Machinery and the Structures and Building Allowances.

The capital allowances on qualifying expenditure for Structures and Buildings will be enhanced from 3% per annum over 33⅓ years to 10% per annum over 10 years; crucially the site must be brought into use before September 30, 2026.

Equally, qualifying expenditure on plant and machinery will benefit from a 100% capital allowance deduction, but only until September 30, 2026.

Navigating capital allowances and property tax relief can be incredibly complicated so freeports offer a prima facie case for businesses to take advantage of some generous, and simplified, government approved tax reliefs; boosting returns on investment and cashflow.

However, slow progress so far – and lack of awareness – may mean that some businesses fail to take full advantage of the benefits on offer or miss the boat entirely.

We are already one year into the freeports voyage and very few new developments are under way. The clock is ticking on the September 2026 deadline for those businesses wishing to develop and invest.

That may be a squeeze on the property life cycle for some projects, including land acquisition, procurement, funding, construction and completion.

For many, even with freeport fast track planning and tax reliefs, it could be a challenge to be up and running by the Autumn of 2026.

In common with too many other of its tax initiatives, the government is giving businesses too little time to understand the opportunities and take advantage.

The reality is that if it really wants to modify behaviour and encourage businesses and individuals to invest it needs to give them enough time to get to grips with a new system – such as a ten-year timescale.

This flaw does not mean freeports are fatally holed or sunk, but an extension by a number of years – perhaps until 2030 – to ensure everything is shipshape will give a much better chance of success even if it is a slightly slower journey than setting course for full speed ahead.

Please see the following links to our other commentary on the UK Freeports:

UK FREEPORTS - Will Tax Incentives Fulfil Their Purpose?

Budget 2021 Update – Eight new Freeports announced – to benefit from significant tax breaks