What is a Freeport and Upper Secondary Threshold?

Posted on Friday, 22nd Sep '23

Duane Jackson by Duane Jackson

In a bid to drive the economy and increase growth, the UK government has invested in freeports. These are shipping ports and airports around the country designed to increase job opportunities, trading and investment. Places like the Solent and Teeside are just two of 10 freeport sites across England, Scotland and Wales.

As well as being exempt from paying tariffs, freeports also have different rules when it comes to employers paying National Insurance. As it stands, employers operating within a freeport only need to pay Secondary Class 1 National Insurance contributions if their employee earns more than the stated Freeport Upper Secondary Threshold.

Our guide explains everything you need to know about operating a business with employees in a freeport, how to determine when you’ll need to pay Class 1 NICs and how to keep your payroll in check.

What is the Freeport Upper Secondary Threshold?

Similar to the secondary threshold for tax purposes, the Freeport Upper Secondary Threshold dictates when an employer should pay Class 1 National Insurance Contributions. The threshold is based on an employee’s salary. It’s also worth noting that this exemption is only applicable for businesses operating from premises inside a freeport tax site.

For employers, National Insurance must be paid for each employee that earns more than:

  • £25,000 each year
  • £2,083 every month
  • £481 per week

If an employee does not meet these criteria, the employer doesn’t owe anything in National Insurance contributions.

There are also some additional considerations employers will need to note. As a result, all employees will need to:

  • Demonstrate they spend at least 60% of their working time within the freeport. This is not the case for any employees with adjustments made to help them work or to accommodate pregnancies, maternity leave or disability.
  • Be classed as a new employee hired between the 6th of April 2022 and the 6th of April 2026.
  • Be within the first 36 months of employment with their employer.
  • Demonstrate they have not been employed by you or any connected employer within the last 24 months.

What is a freeport?

A freeport is an area that has one goal: to create economic activity. This can be through trading, investments and job opportunities happening in or near airports and shipping ports. To do this, freeports are also exempt from paying any tariffs to the government.

Each freeport area could see private and public investment in the billions, with both freeports in Wales set to attract £4.9 billion between them by 2030. The Solent Freeport should also generate around £1.35 billion in private-sector investments alone and, due to its existing trading links, is forecast to increase the country’s Gross Value Added (GVA) by an additional £1.75 billion.

What is a green freeport?

A green freeport is the Scottish equivalent of a freeport. Places like Inverness and Forth have been selected as Scotland’s first Green Freeport zones, offering enhanced trading opportunities for both areas. According to the government, Green Freeports have four objectives:

  • To promote high-quality job creation and encourage regeneration across the area.
  • To support the transition towards a net-zero economy and achieve decarbonisation.
  • To establish reliable hubs for global trade and investment.
  • To foster innovation within the environment and surrounding area.

Additionally, these zones will cover surrounding areas. For example, Forth Greenport will span from Fife to Falkirk and West Lothian to the City of Edinburgh. In total, its boundary width equates to 44.8km. The aim is to drive additional traffic, revenue and opportunities to the areas.

Where are the freeports in the UK?

As of 2021, the UK announced eight freeport sites to be evenly spread across the country. Since then, Wales and Scotland have confirmed an additional two sites each, designed to bring thousands of job opportunities to the local area. There are currently no known sites for Northern Ireland, but this could change in due course.

· East Midlands Freeport (including the Airport)
· Freeport East (Felixstowe and Harwich)
· Humber Freeport (Humber Estuary)
· Liverpool City Region Freeport
· Plymouth and South Devon Freeport
· Solent Freeport
· Teeside Freeport
· Thames Freeport
· Celtic Freeport (Milford Haven and Port Talbot)
· Anglesey Freeport

· Forth Green Freeport
· Inverness and Cromarty Firth Freeport
Northern Ireland
· Freeport sites have not yet been announced for Northern Ireland.

What businesses can operate in a freeport?

Every industry can benefit from the tax relief opportunities that freeports and green freeports offer. Pre-existing businesses might find operating within a freeport zone a more viable option, especially with tax relief available. This is a perk that companies operating outside freeports don’t receive. Businesses that choose to move certain parts of their operations to a freeport can benefit from:

  • Relief from paying National Insurance Contributions (conditions apply).
  • Access to duty exemptions, suspensions and flexibility on duty calculations.
  • A streamlined process for importing and exporting goods to and from the UK.
  • Relief from Stamp Duty Land Tax (England only).

The only real restrictions apply if a business must be situated outside a freeport zone and is unable to move into one. These will be businesses with permanent fixtures, such as countryside estates or independent hotels.

Operating in a freeport? Here’s what employers need to know

Freeports are designed to work in a business’s favour. As well as driving lots of opportunity for the economy, from talent to investment, they’ve also been created to nurture many businesses. There are lots of incentives for businesses who want to operate within a freeport zone, one being short-term tax relief until 30th September 2026.

Claiming tax relief

All forms of tax relief come with their own set of qualifying criteria and will be available at selected freeport sites. For example, Stamp Duty Land Tax (SDLT) relief is available in England, whilst Scotland and Wales have their forms of transaction tax relief. As a rule, you won’t be able to claim any tax relief after 30th September 2026.

Enhanced capital allowances

Exclusively for companies investing in qualifying plant or machinery assets and operating within a freeport, businesses can claim 100% on expenditure during their first year. Essentially, this means any costs incurred from the plant or machinery assets will be able to claim it back in full if it qualifies.

Qualifying criteria includes:

  • Plant or machinery used primarily within a designated freeport tax site when any expenditure occurs.
  • Plant and machinery must not be second-hand.
  • Your company must be registered for Corporation Tax.
  • The plant and machinery must be used as part of your trading activity.

National Insurance contributions

As an employer operating in a freeport, you’ll only need to pay National Insurance contributions on any members of staff that earn over £25,000 a year, £2,083 per month or £481 each week. You’ll be able to claim this tax relief until the 30th of September 2026 or for all new employees if they meet the qualifying conditions. If they do, you’ll be able to claim up to 36 months of relief from the start of their contract.

You’ll need to apply the relevant National Insurance contributions category letter when you run your payroll to access this relief. You’ll also need to evidence any qualifying conditions have been met. These include:

Category letterEmployee Group
IWidows or married women entitled to reduced National Insurance contributions
SEmployees still working that are over their state pension age
LEmployees eligible to defer National Insurance contributions

Stamp Duty Land Tax (SDLT)

If you’re planning to purchase property or land within an English freeport zone, you may be entitled to claim relief on SDLT. This land will need to be used in a way that qualifies for tax relief, such as:

  • Letting the property or land to someone else who pays rent (not for residential use).
  • For redevelopment for sale or development projects.
  • Using the premises for commercial trade.

As a rule, if you can demonstrate that at least 90% of the purchase price is for qualifying land or buildings, you should be able to claim in full from SDLT. In the instance it is less than 90%, you’ll be able to claim relief on the portion of SDLT for the building and land that qualify. If it’s less than 10%, you won’t be able to claim.

Enhanced structures and buildings allowance

If you operate within a freeport, you might be entitled to capital allowances on any qualifying building or structures. Like the other tax relief options, you’ll need to ensure you meet the qualifying criteria:

  • Begin construction of the building or structure when it’s in a freeport tax site.
  • The building or structure must be used for qualifying purposes on or before the 30th of September 2026.
  • Any incurring expenditure must have occurred on a building or structure within a freeport tax site on or before the 30th of September 2026.
  • Your company must be registered for either Corporation or Income Tax.

In the circumstance you incur qualifying expenditure, you’ll be able to claim up to 10% if you meet all the conditions.

A round-up for employers operating in freeport zones

If you’re an employer operating within a freeport, there are a few takeaways for you to consider. These will help you approach any applications for tax reliefs, from stamp duty to National Insurance. You’ll need to remember:

  • These tax relief options can be claimed until the 30th of September 2026.
  • You will need to demonstrate how you qualify for each tax relief.
  • You’ll also need a record of employees and their individual earnings to qualify for National Insurance contributions relief.

Need support with your payroll in a freeport tax site?

At Staffology, our software runs your payroll, whether that’s for five or 1,000 employees. What’s more, we offer compliance with freeport sites, meaning you can keep on top of your National Insurance contributions.

Request a demo today

Duane Jackson, September 22nd, 2023

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