Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in our sectors
April 7, 2021 | Silver Shemmings
Freeports are currently due to open by the end of 2021.
Freeport warehouses are good news for UK importers of high value assets, including art, precious stones and metals, antique, gold, vintage cars and wine collections. This is because Freeport warehouses enable lower customs duties to be paid than non-freeport.
Customs duty becomes payable only when the goods, possibly after processing, are released into the domestic market. Freeports should also unleash the potential to boost and regenerate communities across the UK by lowering import duty and offering a streamlined customs process clearing goods faster.
New UK Freeport Model
The UK Government model incorporates multiple customs zones located within or close to port, so as to create speed and flexibility for port operators and businesses.
The benefits of being legally able to import raw materials and components and then export finished goods with low or no tax payable and limited regulations are obvious and include:
• Suspension of Duty – tariffs, import VAT or excise on imports will not be payable until they leave the Freeport and enter the UK’s domestic market.
• Duty inversion – finished products, where the duty will be lower than applying to component parts will result in the option to import the components duty free, then to manufacture the final product in the Freeport, with the consequence of duty being payable at the more advantageous rate for finished products when the product enters the UK’s domestic market.
• Duty exemption for re-exports – this would apply where components are imported duty free, the final product is then manufactured in the Freeport, and the final product is then exported.
• Simplified and streamlined customs procedures.
Tax Incentives For Importers
UK importers who meet the HMRC “fit and proper test” will be encouraged to open, expand and invest in UK Freeport warehouses. Encouragement for UK wide importers will include tax incentives such as :
• Business rate discounts
• Stamp duty land tax relief
• R&D tax credits and national insurance contributions
• Facilities solutions on VAT and Excise Duties for goods traded within the Freeport warehouses; and
• Enhanced capital allowance.
Benefits Of Freeports
Freeports are often thought to be of particular benefit when tariffs are higher on components than on the finished product. For example, it is possible to import components duty free, manufacture the final product in the Freeport, and then pay the duty at the rate of the finished product when it enters the UK’s domestic market.
Importers can take advantage of the fact that they do not pay tariffs on intermediate goods imported into a Freeport. The tariff is payable when a finished good leave the Freeport zone warehouses. Freeports are a useful tool in combating tariff inversion, goods can be legally traded within the freeport zones without goods physically leaving the warehouses enabling their owners to obtain large gains.
Import Licence – Fit And Proper Test
In order to import into a Freeport warehouse the UK importer will need a licence. Licences will not be issued to persons who do not pass the fit-and-proper-person test and HMRC approval aimed at preventing money laundering, illicit trade of goods, corrupt or untrustworthy people from importing into Freeport warehouses in the UK.
How Does The Fit And Proper Test Work?
In considering whether a person is a ‘fit and proper’ person HMRC will consider:
1. whether the applicant has a previous history of breaching tax or customs laws which HMRC considers to be a serious breach and which is relevant to the suitability of the applicant for positions of trust or influence over finances and tax affairs. Clear examples HMRC can rely on include unspent convictions for dishonesty, fraud, financial or tax crime plus other offences.
2. an applicant’s track record and compliance record, going back 20 years. Where there is fraud or suspected fraud HMRC can go back further.
3. whether any past breach is a ‘serious breach’. In particular HMRC will take into account:
4. relevance – especially cross-border trade, focussing on Customs, VAT and Excise obligations;
behaviour – deliberate breach will be considered more serious especially where the non-compliance has been concealed from HMRC or established to be fraudulent; fraud and other types of criminal non-compliance – will be treated as more serious than other non-compliance; repetition – serial non-compliance will be considered to be more serious than single instances;
ongoing non-compliance – if the applicant is the subject of or associated with a current investigation into non-compliance or in past non-compliance.
HMRC will also take into account whether the applicant is connected with other businesses which have failed the fit and proper test. A sufficient connection is often a contested area between applicants and HMRC.
High Asset Value Raw Goods
Businesses that operate in many high value asset markets such as precious metals, scrap metals and precious metal importers will have a choice. They can continue to import without a licence and lose tax reliefs. Or, the importer can apply for a licence and gain numerous tax reliefs.
Bit of a no brainer.
Author Monty Jivraj is Head of Tax Investigations and Disputes and has worked with individuals and business in the UK for twenty years to help them understand tax laws and save millions of pounds. His business operations background allows him to quickly understand your business model and how the UK and EU tax laws apply to you.
Through extensive work with Her Majesty’s Revenue and Customs (HMRC), he can easily translate and advise on complex HMRC policies, public notices, decisions to deny input tax, fraud investigations and tax assessments.
At Silver Shemmings Ash, we provide seminars and training alongside our core activities in contentious and non-contentious matters. The purpose of these is to facilitate a greater knowledge and understanding of construction and property law. There remains a considerable lack of training in such areas for companies and this is an issue which we are looking to address
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