Mitchell Charlesworth: Freeport’s Tax Incentives

Member article

The government plans to create eight new Freeports in England to boost trade, jobs and investment across the country.

We predict that the special tax and customs rules for the zones will help businesses trade and manufacture goods more profitably, countering the effects of other complications such as Brexit and Covid-19.

What are Freeports?

A free port is an economic zone, generally encompassing a seaport or a freight airport, where the usual VAT and customs rules do not apply. This makes it more economical and easier to import raw materials or components to manufacturers, transform them into manufactured products and then export. They may also have simpler planning rules, helping businesses build or adapt premises in the area quickly.

The locations of England’s eight new free ports were announced by the Chancellor in the March 2021 budget:

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

The eight Freeports will create some 170,000 jobs over the next five to ten years, according to the ports’ own calculations.

What areas are included in the Liverpool City Region Freeport?

The free port in the Liverpool City area will cover 300 hectares of land and will be 45 km in diameter between Wirral Waters in the west and Port Salford in the east. It also includes sites such as the Port of Liverpool which is the largest port in the west of the UK, 3MG in Widnes and Parkside in St Helens.

What are Freeports’ tax incentives?

In a free port, customs duties and import VAT are only charged on goods if and when they are released from the free port, or after a set period of time. This allows businesses to process, store and transport goods with greater flexibility, which gives them a cash advantage and also reduces the tax paid when raw materials can normally have a higher duty rate than manufactured goods or processed. Freeports can also help businesses improve processing time due to reduced transportation.

Freeports will also benefit from greater capital allocations when purchasing equipment and machinery or when building new structures in the Freeport areas. Businesses will be able to claim improved capital deductions of 100% on the purchase of new plant and unused machinery incurred for a trade conducted at the Freeport site. The purchase must be made before September 30, 2026 for the item to benefit from this benefit. In addition, eligible expenses for structures and buildings in an area of ​​Freeport will be eligible for the Improved Structures and Buildings allowance at 10% per annum for 10 years on expenses incurred before September 30, 2026. This is a significant increase from the current level of 3% per year for 33 years for non-Freeport areas.

While the improved capital deductions above will undoubtedly be of benefit to businesses operating in the Freeport areas, Phil Hartley, tax director at Mitchell Charlesworth, warns that the benefit of the 100% improved capital deductions will not materialize. feel before purchases after March 31, 2023 the new Super Deduction. Phil said:

“With the introduction of the Super Deduction for purchases on new and unused factories, businesses operating in Freeport areas will gain a higher benefit by claiming the Super Deduction rather than the 100% Improved Capital Deduction. For example, purchasing £ 2million of new and used plant and machinery before March 31, 2023 would result in a tax break of £ 494,000 under the super-deduction rules, compared to £ 380,000 under the capital deductions improved to 100%. The real benefit of this additional capital deduction will be felt on purchases after March 31, 2023 when, using the previous example, the 100% enhanced capital deduction benefit increases to £ 500,000, due to the increase in the corporate tax rate. at 25%, compared to £ 295,000 under existing rules for annual investment allowance and depreciation allowance. It will therefore be important for companies to take into account the timing of their plant and machinery purchases in order to maximize the tax benefit. “

The government has also signaled its intention to offer property tax relief on stamp duties on land purchases at sites in Freeport where that property is to be used for a qualifying business activity. This should apply until March 31, 2026.

It was also announced in the Queen’s Speech on May 11, 2021 that Freeport employers would be able to pay less national insurance for all new workers hired from April 2022.

For more information and support in international business, Mitchell Charlesworth is a member of the Kreston International Network of Accountants, with expert advisers capable of supporting businesses with a wide range of international business services.

This was posted in the Member News section of Bdaily by Anne Griffiths.

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