Freeports explained: the business-friendly zones designed to unlock potential

In the first of our series on freeports, we look at how this new government scheme may help boost international trade and investment opportunities for your business.

Chancellor Rishi Sunak announced the government’s plan for eight new freeports in the March 2021 Budget, although the consultation process started in February 2020.

“The government is working to boost economic activity across the UK, levelling up towns, cities and regions across the country,” stated the consultation. “As part of this, the government wants to establish freeports, which have different customs rules than the rest of the country, that are innovative hubs, boost global trade, attract inward investment and increase productivity. In doing so, the government wants freeports to generate employment opportunities to the benefit of some of our most deprived communities around the UK.”

Although the finer details for each freeport are yet to be confirmed, the government’s intention in key areas such as import duties, business rates and National Insurance payments, look set to apply across all of them.

What are freeports?

Freeports are a type of port where the businesses located within it can import goods, add value and then export their finished products with the simplest of paperwork and minimal duties. It’s only if the products leave the freeport for the UK market that the goods will face the fuller import process, including higher duties.

The government has stipulated each freeport must contain at least one port (sea, air or rail) that can house up to three taxation sites with a maximum combined area of 1,480 acres, as well as a designated primary customs site.

Why have freeports been established?

Following the UK’s departure from the EU, the government said it would be setting up new freeports for four main purposes:

  1. To boost British business following Brexit, establishing the UK as an independent trading state
  2. To establish national hubs for global trade and investment
  3. To attract investment, opportunity, regeneration and job creation to some of England’s most deprived areas
  4. To create hotbeds for innovation

Where are the new freeports?

Eight sites have been selected from 18 bidders to become freeports. In order to be considered, each one had to satisfy clear criteria, including how the freeport could bring economic opportunities to regions that most need it. The successful sites, which are based around port towns and cities or airports, are:

  • Teesside
  • Humber
  • Liverpool City Region
  • Felixstowe and Harwich
  • Thames
  • Solent
  • Plymouth/South Devon
  • East Midlands Airport

In early 2022, the UK and Scottish governments announced two new green freeports in Scotland and are committing £52m in funding support. The locations are not yet decided, but bidders will have to make a pledge to reach net zero by 2045.

The bidding process will start in spring 2022 and close in the summer, and both governments expect the new sites to be operational by spring 2023.

Both the UK and Welsh governments are in talks about establishing a freeport in Wales, and report “good progress”.

What financial benefits could be available to businesses in freeports?

  • customs flexibility and relief from import duties
  • full business rates relief to all new business and expanding existing businesses
  • an enhanced capital allowance of 100% for companies investing in plant and machinery for use within freeport sites
  • an enhanced 10% structures and building allowance (compared to the national rate of 3%), plus streamlined planning
  • stamp duty land tax relief on the purchase of land or property within the freeport zone

Are there any other benefits?

Freeports are intended to benefit businesses in other ways, too, although the specifics may ultimately differ from one freeport to another. The new Freeport National Insurance Contribution Bill proposes that eligible businesses operating in a freeport tax site pay 0% national insurance contributions for new employees during their first three years of employment and benefit from a deferral of duty while goods remain on site. Also, if any finished goods leave the freeport, they are likely to attract a lower net tariff than their component parts, through a calculation known as duty inversion. Creating clusters of businesses together may also help to increase competition and innovation.

Business solutions

For any businesses considering their five-year growth plans, the eight freeport locations could present opportunities through their supply chain, new customers, or a competitive ecosystem. Business solutions for entrepreneurs and organisations could include the following:

  • international cash management
  • trade and working capital
  • term loans
  • asset finance
  • entrepreneurship support

⁠Where to find out more

In the summer of 2021, the government published several documents outlining its intentions for freeport policy.

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