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Business & Economy

Teesside freeport is open for business: what does this mean for North East businesses?

Andrew Needham, VAT Partner at Haines Watts discusses the VAT benefits for operating in a Freeport

After years of campaigning, and months of planning, the UK’s largest freeport opened for business last month in Teesside. The port area spans the Tees Valley and is expected to bring significant economic opportunities and 18,000 new skilled jobs to our region over the coming years.

The Teesside freeport is the first of eight to open in the UK, and it’s expected that the Humber and Thames freeports will soon follow suit, opening their doors in early 2022.

The hope is that the freeport will help the region to level up and ultimately place Teesside as an international trading hub, by attracting businesses to the sites through offering substantial VAT and customs benefits, as well as tax benefits including Stamp Duty Relief, Business Rates Relief and enhanced structures and building allowances.

The benefits could be huge for manufacturing, processing and engineering firms in particular, and we’ve already seen global businesses such as GE Renewable Energy confirm that they plan to build their new offshore wind turbine blade manufacturing plant within the freeport. Sembcorp have also announced they intend to locate Europe’s largest battery energy storage system at the Wilton site. The benefits should be felt more widely too, with supply chains and wider industries also reaping the rewards of the Freeport.

The business benefits of operating in a freeport

A freeport is an area which sits outside of the UK for VAT and duty purposes.

Where your business operates within a freeport site, you’ll benefit from VAT and duty suspensions, tax reliefs and lower administrative costs due to the streamlined customs procedures, helping to facilitate trade.

The benefits of operating in a freeport are far-reaching. Some of the standout benefits from a VAT perspective include:

  • Duty suspension which will have huge cashflow benefits for businesses who are importing goods. With the suspension, customs duties and import VAT aren’t due on goods imported to the freeport site until they are released into UK circulation.
  • Duty inversionIf the payable duty is lower on a finished product than it was on its component parts, businesses can process or manufacture the final product within the port, allowing them to pay a lower duty rate on the finished product when the goods enter the UK market. This is obviously a huge benefit for processors and manufacturers.
  • Duty exemption for re-exporting goodsIf the finished product or components are then re-exported, you won’t have to pay any customs duties at all. Meaning you can bring goods into the UK to process, manufacture, repackage and store and then send overseas (including to the EU), without having to pay duties or import VAT in the UK.

Not only does this remove the risk of a double customs duty hit (which can happen when third country goods are imported into the UK and then exported to the EU), but it also means that you won’t feel the cashflow burden if you haven’t decided where your goods will ultimately be shipped to.

Obligations and requirements

HMRC have started to publish guidance on how to operate within the freeports in terms of authorisation requirements and obligations, including guidance on whether your business can use an existing customs procedure, or if you need to apply to use the Freeports Customs Special Procedure. The latter of which is a single authorisation, combined with easier declaration requirements. The benefit of the Freeport Customs Special Procedure is that it covers a wide range of procedures, rather than having to account for each individual procedure.

If you do choose to use an existing customs special procedure, you will have to abide to the usual conditions of the procedure and the general Freeport customs site rules with regards to record keeping, which will include keeping accurate, physical and digital records to show that goods are exported out of the UK, are released into the UK market (with duty and import VAT paid) or transferred to another customs-approved operation.

Helping businesses to access the benefits

The freeports will bring a lot of opportunities and benefits for businesses, especially following the UK’s exit from the EU, and it’s positive that HMRC have started to give more guidance for businesses wishing to access the freeport.

However, navigating your way through the complexities which come with operating within the freeport site can seem like a daunting task. Our VAT experts have a wealth of experience advising a diverse range of businesses on the VAT, indirect taxes and customs duty implications that come with importing and exporting goods. Get in touch to find out how our team could support you.

Haines Watts