The political aim of the freeports is to attract British businesses to areas in need of regeneration and boost manufacturing and economic activity within those areas. 

The Government, therefore, incentivises businesses to move or expand into a freeport area by making available tax reliefs and other business benefits. The local government is responsible for any logistical infrastructure and local planning permissions. 

From a Customs benefits perspective, a good understanding of HMRC Customs' special procedures and controls can help a business decide whether moving to the freeport is best. A business needs to be Customs savvy to make the most of the Customs measures available. 

Setting up for success: 

Whatever reasons a business may have for considering setting up within a freeport, the key to success will be making well-informed business decisions on how Customs measures will be implemented and managed. Having HMRC matters in hand could make for a slick operational experience with sound financial benefits if managed well, and all available options are considered in good time. 

Knowing your options is a good place to start. 

What is a Freeport: 

A freeport is a designated secure area, usually in proximity to a port or airport.  Goods are imported using a freeport simplified Customs procedure, and duties and taxes are paid either on the release of goods from the freeport into free circulation in the UK, or the duty and tax obligation is discharged when goods are reexported after economic activity has taken place within the freeport. 

Both the location of the freeport and supporting road infrastructure are necessary for a freeport to be successful, necessary to support logistics and modern-day complex supply chain routes. 

Traditionally, economic activity should take place within the freeport, although the last launch of freeports as an economic measure failed when the freeports became used for goods storage only rather than becoming the beacon of economic activity they were provisioned for. Warehouses can be used for storage, but Customs Warehousing may have been the better option if this was the result. 

From a trade compliance direction, compliance requirements are kept to a minimum within a freeport.  This can make the administration burden less substantial than the record and report biased Customs Special Procedures of Customs Warehousing and Inward Processing.  An HMRC Freeport authorisation is required, the same as is for HMRC special procedures, but there are fewer restrictions and record-keeping requirement measures needed for a freeport authorisation, compared to authorisations for Customs Warehousing or Inward Processing. 

Choosing the right options for a business will depend on its trade needs, supply chain requirements, and operational objectives. Each Customs procedure has its own set of advantages, offering different methods to defer or eliminate Customs duties, streamline logistics, and manage the goods inventory. 

Comparing the benefits of Freeports, Customs Warehousing and Inward Processing 

1. Duty Deferral and Duty Exemptions 

Freeport Advantage: Freeports offer a particularly strong advantage when it comes to deferring or exempting duties. Within a Freeport, businesses can import raw materials, components, or finished goods without paying duties unless the goods enter the domestic UK market (free circulation). If goods are processed within the Freeport and then re-exported, no UK duties are paid at all, offering significant savings for companies involved in re-export operations. 

This deferral and potential duty exemption are compelling advantages for Freeports, especially for companies with complex supply chains that regularly export products. 

Customs Warehouse and Inward Processing: Both Customs Warehouses and Inward Processing authorisations allow duty deferral, but they have notable differences. With a Customs Warehouse, goods can be stored without incurring duty or VAT, and duties are only paid if the goods enter the UK market. This is ideal for businesses that need long-term storage or want to delay duties on goods intended for eventual sale within the UK. 

Inward Processing allows businesses to import goods for processing without paying duties upfront, but it comes with specific conditions. Once the goods are processed, if they are re-exported, no duties are charged, similar to the Freeport benefit. However, businesses must meet strict compliance requirements and maintain accurate records to ensure eligibility for duty exemptions under Inward Processing, making it slightly more complex than Freeports in some cases. 

2. Streamlined Customs Procedures and Reduced Bureaucracy 

Freeport Advantage: One of the benefits of Freeports is the streamlined Customs and regulatory processes, which can help businesses reduce time and administrative burdens. Customs processes within Freeports are designed to facilitate the fast movement of goods, reduce paperwork, and simplify compliance. This means businesses can expect quicker turnaround times for imports and exports within Freeports, reducing potential bottlenecks and speeding up their logistics operations. 

Customs Warehouse and Inward Processing: While Customs Warehouses and Inward Processing authorisations do offer some Customs relief, they often require significant record-keeping and adherence to specific conditions set by HMRC (His Majesty’s Revenue and Customs). Customs Warehouses, for instance, require businesses to track inventory closely and manage periodic Customs declarations as goods enter and leave the warehouse. 

Inward Processing also involves strong administrative record keeping, as businesses must demonstrate that goods have been processed in a qualifying manner, as per their HMRC Authorisation and exported within set timeframes. 

Although these options can work well for businesses with the right infrastructure, they typically demand more compliance management than Freeports. 

3. Tax Incentives and Financial Relief 

Freeport Advantage: Freeports in the UK come with additional tax incentives that are not available with Customs Warehouses or Inward Processing. These include: 

Stamp Duty Land Tax Relief: Businesses within Freeports are exempt from paying stamp duty on land and property transactions, which is beneficial for companies looking to build or expand facilities. 

Enhanced Capital Allowances: Companies within Freeports can claim enhanced capital allowances on plant and machinery, allowing a higher proportion of their investment to be offset against their profits for tax purposes. 

National Insurance Contributions Relief: Employers may be eligible for reduced National Insurance contributions for new jobs created in Freeports, making it more affordable to expand the workforce. 

These tax reliefs make Freeports attractive for businesses planning to grow, invest in equipment, or expand their physical footprint. In contrast, Customs Warehouses and Inward Processing authorisations do not provide similar tax incentives. 

4. Flexibility and Adaptability 

Freeport Advantage: Freeports provide a flexible environment for a wide range of operations, from manufacturing to warehousing to distribution. Businesses can import, store, manufacture, and re-export goods all within the same Freeport zone, allowing them to keep all operations in a single location. This integrated setup benefits complex supply chains, providing flexibility in responding to changes in demand, production processes, or distribution needs. 

Customs Warehouse and Inward Processing: Customs Warehouses and Inward Processing also offer flexibility, but generally with more restrictions. 

Customs Warehouses are primarily intended for storage, so they are ideal for businesses that need a holding location for inventory without immediate processing or manufacturing. 

Inward Processing, on the other hand, focuses on goods that will be processed and then exported, limiting flexibility for products that might eventually enter the UK market. 

While both options are beneficial for specific needs, they may not be as adaptable for businesses looking to consolidate diverse operations. 

5. Compliance and Ease of Use 

Freeport Advantage: Freeports have been structured to reduce compliance complexity, making them more accessible for businesses without extensive Customs expertise. They provide a simplified regulatory environment where businesses can operate with fewer restrictions than in traditional Customs facilities, making compliance easier to manage and often reducing administrative overhead. 

Customs Warehouse and Inward Processing: Both Customs Warehouses and Inward Processing authorisations require strict adherence to HMRC guidelines and detailed record-keeping. Customs Warehouses need robust inventory tracking, and Inward Processing requires detailed documentation of goods as they are processed and exported. These can be effective solutions for businesses with strong Customs management practices, but they demand more compliance resources than Freeports. 

Conclusion 

For UK businesses, each option, Freeports, Customs Warehouses, and Inward Processing—has distinct advantages. Freeports offer a highly attractive environment with tax incentives, duty deferral, flexibility, and reduced compliance requirements, making them ideal for businesses with diverse supply chains, growth plans, and export operations. Customs Warehouses and Inward Processing authorisations are valuable for companies with more specific needs, such as long-term storage or the need to process and re-export goods, but they come with additional compliance obligations. 

Ultimately, Freeports may provide the most comprehensive benefits for businesses looking to combine various operations, benefit from tax relief, and reduce Customs costs in a streamlined, supportive regulatory setting. For simpler storage needs or specific Inward Processing tasks, Customs Warehouses and Inward Processing may be effective, especially for businesses capable of handling compliance requirements. 

Autumn Budget 2024 - GOV.UK 

If you are interested in exploring this topic further, you might find it worthwhile to consider the training courses and live clinics offered by Strong & Herd LLP: