Enhanced capital allowance for plant and machinery in Freeports
Published 3 March 2021
© Crown copyright 2021
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/enhanced-capital-allowance-for-plant-and-machinery-in-freeports/enhanced-capital-allowance-for-plant-and-machinery-in-freeports
Who is likely to be affected
Businesses incurring qualifying expenditure on plant and machinery for use in Freeport tax sites, from the date the Freeport tax site is designated until September 2026.
General description of the measure
This measure will introduce an enhanced capital allowance (ECA) available to companies for qualifying expenditure on plant and machinery for use within Freeport tax sites.
This ECA will be available for such qualifying expenditure incurred on or after the date the Freeport tax site is designated until 30 September 2026. The ECA will be for 100% of the qualifying expenditure for the tax period in which it is incurred.
Policy objective
This ECA is designed to incentivise companies to invest in plant and machinery in Freeport tax sites.
Background to the measure
On 10 February 2020 the government published a consultation on freeport policy, in respect of its plans to introduce at least 10 Freeports in the United Kingdom following its departure from the European Union.
Freeports are intended to support the policy of levelling up the towns, cities and regions of the United Kingdom.
The government published a consultation response on 7 October 2020, which provided initial confirmation of the tax reliefs it intended to offer to encourage investment in Freeports. This was followed by a Freeport bidding prospectus on 16 November 2020, which included plans for the introduction of the tax reliefs to be offered.
Detailed proposal
Operative date
This measure will have effect for qualifying expenditure incurred on or after the date the Freeport site is designated.
Current law
The measure will introduce provisions for this ECA into the Capital Allowances Act 2001 through the Finance Bill 2021, which will make available an enhanced level of relief for investment in plant and machinery for use in designated tax sites within Freeport locations in Great Britain.
Proposed revisions
The provisions for this ECA will be included within Part 2 of the Capital Allowances Act 2001. The plant and machinery must be new or unused, be for the purpose of a qualifying activity and for primary use within a tax site within a Freeport.
There will be a provision to clawback the ECA claimed where the plant or machinery is for primary use within a Freeport tax site when it is acquired or brought into use, but then within 5 years from its acquisition or when it is brought into use, becomes for primary use outside of a tax site of a Freeport area.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| Empty | Empty | Empty | Empty | Empty | Empty |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is expected to have no impact on individuals as it only affects businesses incurring qualifying expenditure on plant and machinery for use in Freeport tax sites. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics. The measure applies only to Great Britain, so there will be no Northern Ireland impacts.
Impact on business including civil society organisations
This measure will impact on company businesses investing in equipment in Freeport tax sites by making available an increased level of relief for expenditure on plant or machinery at 100% of the cost for the tax period in which it was incurred.
One-off costs could include businesses having to make themselves aware of the change and updating software as a result of the change. There are not expected to be any continuing costs.
Continuing savings could include businesses not having to calculate a lesser rate of relief through writing down allowances in future tax periods against the purchase of plant and machinery covered by this ECA. This measure is not expected to impact civil society organisations.
This measure is expected overall to improve company businesses’ experience of dealing with HMRC as calculating capital allowances for their plant and machinery purchases will be simpler.
Operational impact (£m) (HMRC or other)
There will be HMRC costs to deliver this change, including both changes to IT systems and operationally. These costs are estimated at £3.5 million.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns and through communications with the affected taxpayer population. Freeports governance bodies will also need to monitor and evaluate business activity in each Freeport.
Further advice
If you have any questions about this change, please contact John Rodgers on Telephone: 03000 514188 or email: john.p.rodgers@hmrc.gov.uk.