One of the standout announcements in Rishi Sunak’s Budget last week was the creation of eight new freeports in England.
The Chancellor confirmed the locations of the freeports and said they will help the UK economy to bounce back from the pandemic. But what exactly is a freeport? What are the pros and cons for businesses? And what does their arrival mean for tax professionals?
What are freeports?
Freeports are used by countries around the world and are typically located in shipping ports, airports or other areas that goods arrive at.
Goods that arrive into freeports from overseas are not subject to taxes that are normally paid to the government. These taxes only become applicable if the items in question leave the freeport and are transported elsewhere in the country.
If a business has goods imported into a UK freeport and ships them on to an international destination without them leaving the freeport, no taxes will be charged. This is potentially invaluable to firms using the UK as a transit destination for goods or for storage purposes.
Has the UK had freeports before?
Yes, the UK had seven freeports in locations such as Southampton and Liverpool between 1984 and 2021.
Where will the new freeports be located?
The new freeports will come into effect later this year and will be located at:
• Humber region
• Liverpool City region
• East Midlands Airport
• Felixstowe and Harwich
Why is the government introducing freeports?
Freeports are designed to encourage businesses that import, process and re-export goods to establish themselves or expand operations in areas that are often classified as deprived. They typically reduce administrative burdens and tariff controls, provide companies with relief from duties and import taxes and ease tax regulations.
Mr Sunak said in his Budget that freeports will offer “different rules to make it easier and cheaper to do business”. The government hopes the zones will trigger an increase in economic activity and investment that leads to widespread job creation within the freeports.
Businesses operating within the freeports will be offered tax breaks, in most cases lasting for five years.
Following Brexit, the UK is also thought to be in a stronger position to offer more favourable terms to businesses using freeports as any tax benefits will no longer require agreement from the European Commission.
What do freeports mean for tax professionals?
Businesses trading in the UK will have to adapt their tax processes to take into account the new rules governing freeports, including tax-exempt transactions and any tax breaks or reduced rates the government may opt to introduce.
Certain goods that enter freeports and are subsequently re-exported will not be liable for tariffs, meaning tax teams will have to apply the correct treatment to relevant transactions.
If your team does not boast the vast resources likely to be required to complete this process manually, investing in our automated tax determination and reporting solution for the UK will transform your ability to comply with the new freeport regulations. Contact us today to find out more.