Freeports: A melting pot for innovation – Don't get caught on the hop!

12th August 2021

In the March 2021 budget eight new Freeports were announced: East Midlands Airport, Felixstowe and Harwich, Humber Region, Liverpool City Region, Plymouth, Solent, Thames and Teesside. The UK had a small number of Freeports before 2012 including Liverpool, Southampton and the Port of Tilbury, but the creation of eight new Freeports represents a bold step towards the United Kingdom forging its own trade path post Brexit.

A Freeport is a secure customs zone located at a port (air, rail, or sea) which benefits from relaxed or reduced customs regime, taxation and administrative requirements despite being located within a jurisdiction’s land and regulatory border.

Freeports were a key focus of the Johnson campaign in 2019 for the post Brexit era. The EU does not prohibit Freeports, but the EU legal framework places limitations on the operation of a Freeport within the EU customs union. Freeports also form an important part of the levelling up agenda.

Most are expected to become operational by 2022 but much of the regulation in this area is still evolving.  In particular, changes to the planning process applicable to Freeports remain to be published.  Guidance is expected in areas of governance, security, planning, procurement, technology, customs and tax.

Freeports have been referred to as melting pots for innovation, as a result of their potential to attract innovative and green and cleantech businesses into clusters.  What does this mean for companies operating in the Infrastructure and Energy (I&E) sectors?

The following main advantages flow from this concept:

• Decarbonisation of Ports – the push to decarbonise the Freeport zones (aided by streamlined planning processes) will result in enhanced opportunities to participate in the quicker development of ‘green port’ infrastructure such as EV charging points, hydrogen and ammonia fuelling, battery storage and grid balancing facilities and shoreside power including solar and wind. Further, multi modal ports could support a decarbonised logistics centre.
• Innovation – flexible or reduced regulation will allow Freeports to operate as a “regulatory sandbox” providing space and the opportunity for innovation and experimentation and the co-location of supply chains and processes from generation through to storage, export and carbon capture. They are an ideal home for cleantech businesses which will thrive and grow together in clusters, for example as part of a hydrogen gas network.
• Renewable Energy Projects – the suspension of duties on goods imported to Freeports and the establishment of industrial ‘clusters’ at Freeport sites means that those involved in the construction of renewable infrastructure and technology will only be required to pay tax on a final, assembled product upon its entry to the UK market, rather than on each individual component upon importation. This has major implications for the delivery of cheaper renewable energy projects particularly if coupled with strong supporting infrastructure. It will also incentivise companies in the renewable energy sector to locate their supply chain in the UK, if they do not already do so.
• Access to innovation funding – the government is especially interested in private sector-led innovation ambitions that contribute to the decarbonisation agenda or Net Zero.

There are also the practical benefits of operating in a Freeport Zone:

• Suspension of VAT
• Zero Rate NICs – in addition to the availability of work forces in Freeport areas, employers operating in a Freeport will pay 0% employer NIC on the salaries of any new employee working in the Freeport tax site. This rate will apply for 3 years on earnings up to a £25,000 per annum threshold with an employee being required to work 60% or more of their working hours in the Freeport.  The relief is intended to be available for up to 9 years from April 2022 although the Government intends to review whether it should be continued up to 2031;
• Business Rate Reliefs – the Government intends to offer up to 100% relief from business rates to newly formed business and those relocating to a Freeport from 1 October 2021. It is intended that the relief will apply for 5 years from the receipt of the first relief, which must be by 30 September 2026;
• Local Retention of Business Rates – the councils in which Freeports are located will retain business rates for 25 years to support growth and investment in the area above an agreed baseline;
• Enhanced Capital Allowances – to provide enhanced tax relief for companies investing in qualifying new plant and machinery assets. This relief allows companies operating within a Freeport to reduce their taxable profits by the full cost of qualifying investment where this investment occurs between 1 October 2021 and 30 September 2026;
• Stamp Duty Land Tax Relief – to apply on all land purchases for qualifying commercial activity within a Freeport site between 1 April 2021 and 31 March 2026;
• Enhanced Structures and Buildings Allowance – providing enhanced tax relief for companies constructing or renovating structures and buildings for non-residential use.

How we can help

The aims of the UK government’s new Freeports commitment and the levelling up agenda are clear and there are likely to be significant commercial prospects which could benefit well-informed and progressive businesses within the I&E sectors over the coming years.  However the regulatory landscape is still evolving.  Walker Morris is monitoring closely and will report on key developments.

Walker Morris also offers comprehensive and cross-discipline legal support to companies looking to locate within one of the UK’s new Freeports, or to otherwise capitalise upon the opportunities that Freeports may afford.

If you would like any information, advice or training in relation to planning, construction, international trade, supply chain and logistics, commercial contracting and/or infrastructure and energy issues, please do not hesitate to get in touch.