Member Article

Experts from Shoosmiths and BDO recently led a panel discussion regarding the upcoming introduction of Solent’s Freeport. Shoosmiths’ Kirsten Hewson (head of real estate), Stephen Porter (head of corporate) and Solent office head Paula Swain (also a board member of the Solent Freeport Consortium & Solent LEP) discussed the upcoming development.

Also on the panel were Cllr. Daniel Fitzhenry, leader of Southampton City Council, and customs and tax advisers from BDO – Stuart Lisle and Glynn Woodhouse.

The event centred around the following topics, as summarised in the below takeaway notes:

• The decision-making journey for both local business and investors coming into the region
• Investment decisions and how these might align with Freeport objectives
• What you need to think about in terms of tax, customs, planning and real estate
• How to set up operations within a Freeport, and steps you can take now

Background to the Solent Freeport initiative

The Solent is one of eight regions in England selected to be a Freeport, potentially unlocking billions of pounds’ worth of investment. The Solent region already contributes £31 billion to the UK economy. Estimates suggests that Freeport status could boost that figure by an additional £3.57 billion through gross uplift uplift, with £1.97 billion in the Solent region and £1.6 billion in the wider UK supply chain.

The decision-making journey for both local business and investors coming into the region

As outlined by the speakers, the Solent Freeport aims to increase international trade links and port capability, unlock designated development sites, improve the infrastructure supporting international ports and provide customs warehousing with customs duties suspended.

There are many benefits of operating in a Freeport. Within the freeport are designated areas called ‘freezones’ where authorised businesses can suspend VAT and customs duty while storing or working on goods. These goods can then be ‘imported’ into the UK with payment of the appropriate VAT and duty – or re-exported with no VAT or duty impact. Alternatively, the goods can be transferred into some other authorised customs regime.

Tax breaks are not the only incentive to consider. As an incumbent port, this relationship can be tapped for further business links – for example with bodies such as the Department for Transport or with fellow operators within the area. Solent Freeport will aim for net zero carbon across its sites, looking for low carbon growth, skills and jobs – attracting both potential employees as well as new customers.

Investment decisions and how these might align with Freeport objectives

Freeports are being touted as ‘dynamic environments to bring together innovators’, an interesting prospect for investors. The Solent supply chain has the benefit of developing both new and existing businesses, either through upscaling or new revenue streams. According to Cllr Fitzhenry, the City of Southampton is looking into signing off relationships with India, Miami, UAE amongst others.

The Freeport will also bring opportunity for regeneration – with objectives centering around high skilled jobs and leveraging tax benefits to create sustainable infrastructure. Business investment plans must align with the Freeport initiative in order to make the most of such prospects. The discussion emphasised that a Freeport investment has a strong opportunity to bring long-term success. Although this may be business dependent, the council areas where the tax sites are located will be able to retain 100% of the business rates growth above an agreed baseline – guaranteed for 25 years. This long-term plan cements opportunities for regeneration, infrastructure and growth within the Solent region. 
Panel speakers said there was little to no interest from private equity and venture capital firms at the current time. With the risk of gains potentially not being made in the short to medium term, the opportunity is considered less by such stakeholders.

What you need to think about in terms of tax, customs, planning and real estate

There are many considerations to bear in mind with regards to all Freeports within the UK as they offer a bundle of tax and customs benefits designed to incentivise business to open, expand and invest. Currently, it looks as though it will be far easier for businesses without a long history of customs compliance in the UK to be authorised to access these indirect tax reliefs. This means that the regime will be of particular interest to inward investment, giving an opportunity for overseas firms to operate in the UK in a preferential regime. Tax sites will be limited in size, so space will have to be managed. The earlier a business progresses conversation with a Freeport, the earlier they can determine whether to progress such interest.

In order to operate in a freezone, businesses will need to have an agreement with the freezone operator (or apply to be an operator themselves). A formal authorisation will then be required from HMRC. Once approved, businesses will need to keep detailed records, such as those informing the freezone operator when goods are moved in and out of the zone.

In terms of restrictions of goods allowed in the freezone, HMRC has said that at present there will be no opportunity to use them for controlled goods. This means that items that have a military purpose, for example, will not be able to enter a freezone. This restriction also applies to excisable goods like alcohol and tobacco. These items have very high duty rates so suspension would have been valuable. Whether the regime will be extended to cover such goods in the future is an interesting prospect not yet known – though the wording of the guidance suggests that it might be.

A key takeaway from the discussion was the announcement of Southampton Airport as part of the Solent Freeport, as confirmed by leader of Southampton City Council Cllr Daniel Fitzhenry. The addition will add a unique aspect to the Freeport, further enhancing  global links.

How to set up operations within a Freeport, and steps businesses can take now

For a business to progress its interest in a Freeport, it will need to register its interest with the freeport – either via the Solent Freeport website or through getting in touch with Shoosmiths. The application process is via an online form, which is now live on HMRC’s website. At this stage, the panel noted it is difficult to say how easy or hard this process will be – there are no examples yet of businesses completing this. HMRC’s customs team do, however, have a long history of creating forms that seem at first sight to be very simple, though may actually lead to some quite complex questions; something for potential applicants to consider.

If you have any further questions, please do not hesitate to get in touch with Paula Swain or James Wood-Robertson.

Watch the full recording of the webinar below: