Freeports: How do they work and what do they mean for you?
The Spring Budget delivered some exciting news for the North, with the announcement of the northern treasury campus in Darlington, a UK infrastructure bank in Leeds and the transformative Teesside and Humber freeports.
The freeports, which are two of only eight announced for the UK, are expected to bring benefits that should be felt far beyond the local regions. In particular, the Teesside freeport has the potential to create up to 18,000 skilled jobs within the next five years.
These areas are usually vast, and both the Teesside and Humber freeports will be no exception. The economic opportunities won’t be limited to the freeport - we can expect to see investment in the surrounding areas of Teesside and the Humber too. There will be a dependence on supply chain businesses, a need for transport connectivity and potentially even new housing developments as a result of the long term job creation.
We could see the Teesside freeport opening later this year, with the implementation and business plans already underway. Similarly, the Humber freeport which has a 45km radius covering Hull, Grimsby, Immingham and Goole has already attracted £75m of Government investment.
What is a freeport?
A freeport is effectively a bubble (usually located near a port or airport) which sits outside of the UK from a VAT and duty perspective when it comes to facilitating trade.
Businesses can operate and trade flexibly under VAT and duty suspension within the freeport, whilst also benefitting from greater administrative simplifications.
The government’s vision is for freeports to become international hubs for manufacturing and innovation, with the tariff and customs benefits on offer incentivising businesses to locate manufacturing and processing of imported goods in the sites, and with streamlined customs procedures reducing administrative costs for businesses.
Key benefits of the freeport:
- Duty suspension – no customs duties, import VAT or excise would be due on goods entering the freeport, until the goods are removed to free circulation in the UK.
- Duty inversion – where the duty payable on a finished product is lower than that on its component parts, businesses can assemble/manufacture the final product in the freeport, and pay duty at the lower finished product rate, when the goods are entered into free circulation in the UK.
- Duty exemption for re-exports – no customs duties would be payable in the UK, where the components or manufactured finished products are re-exported.
- Simplified customs procedures – streamlined administrative procedures should enable businesses to access freeports with a reduced compliance burden.
If your imported goods are subsequently exported:
Import VAT and duties should not be incurred. Businesses can bring goods from overseas into the freeport for to trade, process, manufacture, repackage, store and then re-export to overseas customers, for example in the EU, without ever having to pay duties or import VAT.
Using freeports should remove the potential double customs duty hit that can occur where third country goods are imported into the UK and are to be subsequently exported to the EU. Freeports can also help to ease your cash flow if you haven’t decided where the goods will ultimately be shipped. In a way, this is very similar to customs warehousing but on a much bigger scale.
Freeports should therefore be hugely attractive to manufacturers, processors and traders, who intend to subsequently export the goods.
If your imported goods are released into the UK market:
You can still delay the point at which goods are released in to free circulation in the UK, which can provide a cash flow benefit. Payments of customs duty can be deferred from point of entry to the freeport, until the date when the goods are removed into free circulation in the UK.
Hopefully, import VAT should not be such a key consideration with the implementation of the postponed VAT accounting scheme, where you are registered for VAT in the UK.
Tax reliefs and other benefits:
Alongside the VAT and customs benefits, businesses in the freeport will be able to take advantage of an array of other tax reliefs and incentives.
These will range from an enhanced 10% rate of structures and buildings allowances for buildings within the site and an enhanced capital allowance of 100% for those who are investing in plant and machinery within the site, as well as full business rates relief, stamp duty relief and reduced national insurance contributions.
For businesses who are looking to import or export goods, this could have a big impact on how they approach logistics planning and opportunities overseas.
Supporting importers and exporters:
Following the UK’s departure from the EU, we believe freeports could provide a very attractive opportunity for those with international supply chains. Our team has vast experience advising businesses on customs duty, VAT and indirect taxes.
We advise a diverse range of clients with complex supply chains and operations abroad, helping them to navigate the issues they face when importing and exporting. Get in touch to find out more about how our team could support you.
This was posted in Bdaily's Members' News section by Haines Watts .
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