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Freeports: business needs greater clarity

Author: ICAEW Insights

Published: 31 Aug 2021

ICAEW is calling on the government to add much-needed meat on the bones of its post-Brexit freeport strategy, following concerns of a lack of clarity about how freeport areas will work in practice.

Eight new English freeports were announced in this year’s Budget: East Midlands Airport, Felixstowe and Harwich, the Humber region, Liverpool City Region, Plymouth, the Solent, the Thames, and Teesside. At the time, the government said it hoped they would act as national hubs for global trade and investment in the UK, promote regional regeneration and job creation and be hotbeds of innovation. The government also hopes at least one freeport will be established in each of Northern Ireland, Scotland and Wales.

Freeports will benefit from a range of incentives including a suspension from customs duties for goods imported into a freeport and less burdensome customs procedures. Certain areas within these freeports will also benefit from a range of tax incentives, such as enhanced capital allowances and relief from stamp duty land tax and employer national insurance contributions for new employees. They will also have access to a regeneration and infrastructure fund worth up to £175m.

Despite being due to begin operations in late 2021, all-important details on how they would work in practice is yet to be published, prompting ICAEW to call for greater clarity so that businesses can put plans in place if they are considering relocating or setting up new operations in a freeport area.

Frank Haskew, ICAEW’s Head of Tax, said that businesses need greater clarity on how the duty provisions would work in practice, including how the customs benefits interact with the UK’s Free Trade Agreements, as well as an indicative timeline for their introduction. 

“There is still a lot of uncertainty about how freeports will actually work and we have pressed HMRC about when we can expect to see the regulations laid and any guidance issued”, Haskew said. “Given that the government was originally looking to start seeing them up and running by the end of this year, it’s all looking a bit tight, and it is unlikely we will see designations of freeports in Wales, Scotland and Northern Ireland until well into 2022.”

Richard Jones, ICAEW’s Business Tax Manager, warned that a lack of information had the potential to stall business decisions: “Businesses looking to set up in freeports need to plan in advance. Even if they know what those reliefs are going to be, they need to factor in other commercial considerations such as the availability of a suitable local workforce or transport links, for example, before deciding whether to relocate to a freeport area.”

Haskew also warned of a dearth of knowledge and understanding about the potential benefits. “From a customs perspective, there isn’t yet a good awareness of what you can or cannot do and there’s a severe lack of people with the necessary customs knowledge, so there’s an issue of skills and capabilities to implement freeports successfully.” 

A 2018 report suggested that freeports could create 150,000 new jobs while boosting trade by £12bn per year and UK GDP by £9bn. The Treasury is under pressure to publish a specific assessment of the impact – both benefits and costs – of government policy for these freeports. “On the face of it, freeports offer some useful benefits but for individual businesses, they need to think carefully about their commercial drivers,” Jones added.

Meanwhile, a report by the House of Commons International Trade Committee has stressed the need for cross-departmental cooperation and agreement for the freeport policy to succeed, amid reported concerns about which government department will be ultimately responsible for the development and implementation of the freeport policy.

George Bull, Senior Tax Partner at RSM, said the lack of agreement was unhelpful at a time when businesses need to retain confidence in what the freeports might achieve. “It adds pressure on the government to publish full details of how these freeports will work,” Bull said, “and there can be no definitive answers until the identity of the department in charge of the freeport programme is announced.”

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