Tax reliefs (part 2)

Question 1

What is a Freeport special tax site

Accepted Answer

Each Freeport may have a number of Freeport special tax sites. These sites are independent and separately authorised from Freeport customs sites. They may cover the same area of land, or they may be separate to the Freeport customs site.

Eligible customers in Freeport special tax sites will enjoy a range of tax reliefs. This includes:

reduced secondary Class 1 National Insurance contributions for new employees
enhanced structures and buildings allowances
enhanced plant and machinery capital allowances
reduced Stamp Duty Land Tax in Freeports (England), Land and Buildings Transaction Tax (Scotland) and Land Transaction Tax (Wales)

Question 2

Secondary Class 1 National Insurance contributions

Accepted Answer

What is the relief

The National Insurance Contributions Act 2022 provides for a zero-rate of secondary Class 1 National Insurance contributions for Freeport employers. This relief only applies if there are qualifying employees and the employer’s business premises are located within a Freeport special tax site.

What are the qualifying conditions

You can apply the zero-rate of secondary Class 1 National Insurance contributions up to the Freeport Upper Secondary Threshold (FUST) for employees who meet the following conditions:

the employee starts a new employment on or after 6 April 2022 and, no later than 30 September 2031 for English Freeport special tax sites, or 30 September 2034 for Scottish Green Freeport and Welsh Freeport special tax sites
the earnings are paid during the first 36 months from the start of the employment
the contributions are paid in respect of earnings paid in a tax week all of which is in a qualifying period of the employment
the time the qualifying period begins, the employer reasonably expects that, in the qualifying period, their employee will spend 60% of their working time in a single Freeport special tax site which the employer has a business premises

New employment

To claim the relief, the employee starts a new employment on or after 6 April 2022 and, no later than 30 September 2031 for English Freeport special tax sites, or 30 September 2034 for Scottish Green Freeport and Welsh Freeport special tax sites.

An employment is a new employment if the employee has not been employed by that employer, or a person connected with the employer, in the previous 24 months before the start of the employment. Guidance about ‘connected with’ can be found in HMRC’s internal guidance General principles: connected persons.

36 month rule

You can claim this relief for all new employees for 36 months from the start of their employment, provided they continue to meet the qualifying conditions. The 36 month period starts on the day the employment begins not, for example, on the date the employee moves to a Freeport special tax site.

You must stop claiming the relief 36 months after the employment started.

Qualifying period of employment

To be eligible for the relief the earnings must be paid in a ‘qualifying period’.

A qualifying period begins with either the start of the employment or a substantial change in the employee’s working arrangement. The qualifying period ends with either the end of the employment or a substantial change in working arrangements.

Examples of a substantial change in the working arrangements are:

a reduction or increase in hours
a redistribution or addition of duties
a change to the employee’s permanent workplace

There are several examples in HMRC’s Internal guidance on ‘substantial change in earner’s working arrangements’.

60% rule

To be eligible for the relief you must also reasonably expect that 60% or more of the employee’s working time during that period will be spent in a single Freeport special tax site within which you have a business premises.

‘Working time’ is the time that the employee is expected to provide services for the employer under the terms of an employment contract.

During a period of leave you can treat the working time at the Freeport special tax site as being in the same proportion as it was prior to the period of leave. ‘Leave’ includes, but is not limited to, maternity, paternity, adoption, sickness and annual leave.

Where the employee has the protected characteristic of disability or is pregnant, then the 60% rule is treated as met if:

the employer has made adjustments to the time the employee spends in the Freeport special tax site
the 60% rule would have been met but for the adjustments

You must stop claiming relief when you no longer reasonably expect an employee will spend at least 60% of their working time in a single Freeport special tax site, unless you make adjustments on account of disability or pregnancy.

You can find further information in HMRC manual NIM01520 and HMRC manual NIM01525.

Business premises postcode reporting

As part of your Full Payment Submission (FPS), you are required to provide the postcode for your business premises at which the qualifying employee works. This requirement applies to all employees for whom you are claiming the zero-rate of secondary Class 1 National Insurance contributions.

The postcode should belong to your business premises. It must be located within a single special tax site at which you expect a qualifying employee to spend 60% or more of their working time.

Where the special tax site has not been assigned a postcode, HMRC will provide you with an alternative code to use until a postcode is assigned.

If your business premises are not located within a special tax site, you will not meet the requirements of an employer who is eligible to claim zero-rate secondary contributions.

How much can I benefit

You will only need to pay secondary Class 1 National Insurance contributions if the qualifying employee earns more than the Freeport Upper Secondary Threshold (FUST). For the tax year 2025 to 2026, the FUST is:

£25,000 per year
£2,083 per month
£481 per week

If an employee earns less than these thresholds, then no secondary Class 1 National Insurance contributions are due. If they earn more than the threshold then only the amount up to the threshold will benefit from the zero-rate. Any amount above the threshold will be liable at a rate of 15% from 6 April 2025.

The relief only applies to secondary Class 1 National Insurance contributions. Primary Class 1 National Insurance contributions do not benefit from the relief.

An employer who is a public authority cannot claim this relief.

Any earnings where the FUST is applicable will still count towards the employer’s pay bill for Apprenticeship Levy purposes.

National Insurance contributions category letter

To claim the relief, both you as an employer and your employee must meet the qualifying criteria. You must apply the relevant National Insurance contributions category letter when running payroll. HMRC have issued four new National Insurance contributions categories.

They are:

Category letter	Employee group
F	All employees who work in Freeports, apart from those in groups I, L, and S in this table
I	Married women and widows working in Freeports who have a certificate of election form showing they’re entitled to pay reduced National Insurance
L	Employees who work in Freeports and can defer National Insurance because they’re already paying it in another job
S	Employees who work in Freeports and are over the State Pension age

You can find out more information about National Insurance contributions category letters GOV.UK website.

Questions to ask before claiming the relief

Question 1

Do you have business premises in a Freeport special tax site?

If you do not have business premises in a Freeport special tax site, then you cannot claim the relief for any employees. If you have more than one business premises, you can only claim relief for those eligible employees who work at your business premises in a Freeport special tax site.

Remember to check the title plan and the relevant tax site map to ensure the business is fully within the tax site.

Question 2

Is this a new employment?

To qualify for relief the employment must start between 6 April 2022 and 30 September 2031 or 30 September 2034 for Scottish Green Freeport and Welsh Freeport special tax sites.

If you, or a person connected with you as the employer, have employed the employee in the previous 24 months, then this is not a new employment. The relief cannot be claimed.

Only employees who have an employment which starts between those dates can qualify for the National Insurance contributions relief.

Question 3

Do you reasonably expect the employee to spend at least 60% of their working time at your business premises located within the Freeport special tax site?

If you do not reasonably expect this, then they will not qualify for relief.

You could consider:

does the employee have a hybrid working arrangement meaning they spend part of their working time working from home
are they salespersons or transport drivers, meaning they spend part of their working time away from the Freeport special tax site

Where the employee is on a period of leave from working time spent at a Freeport special tax site then, for the purposes of the 60% rule, the proportion of time spent on leave is the same as the proportion of the earner’s working time that would be spent at that site if they were not on leave. Leave includes, but is not limited to, maternity, paternity, adoption, sickness and annual leave. This condition is treated as having been met where the employer has made an adjustment to their employee’s working pattern to accommodate the following protected characteristics: disability, pregnancy or maternity. You can find more information in HMRC manual NIM01525.

Where the employer no longer reasonably expects the employee to spend 60% of their working time at their business premises located within the Freeport special tax site then the employment no longer qualifies for the zero-rate. This is most often the case when there is an erosion of the time spent in the Freeport special tax site over a period of time.

Question 4

How can I demonstrate the employee is spending 60% of their working time in the Freeport special tax site?

We may ask you to provide evidence that an employee is spending at least 60% of their working time in the Freeport special tax site. There is further detail on what evidence should be retained in the section on ‘Record Keeping’.

Question 5

Do you have business premises in more than one Freeport special tax site?

Where an employee is expected to work at more than one Freeport special tax site and you have business premises in both sites, you can only claim the relief if the employee is reasonably expected to spend 60% of their working time at one of those sites. If an employee does not spend 60% of their working time at a single Freeport special tax site, then you cannot claim the relief.

For example

Helen works 4 days a week. She spends 2 days a week (50% of her working time) at a Freeport special tax site in Liverpool and 2 days a week (50% of her working time) at a Freeport special tax site in Teesside.

The employer cannot claim relief for Helen because she does not spend 60% of her working time at one site.

Question 6

Is the employee within the first 36 months of their employment with you?

You can only claim the relief if they started their employment within the last 36 months. Once they have been employed for more than 36 months you cannot claim the relief.

The 36-month period starts on the day the employment begins not, for example, on the date the employee moves to a Freeport special tax site.

Question 7

Was your business premises located in a Freeport special tax site when the employment started or following a substantial change?

If not, then the relief cannot be claimed.

For example

Lisa starts a new employment at her employers’ head office on 1 June 2024. She spends 100% of her working time at the premises. However, the premises are not in a Freeport special tax site until 1 December 2024. Lisa continues to work at head office until she retires in 2029. The employer cannot claim relief for Lisa. This is because at the time her employment started the premises was not located within a Freeport special tax site.

However, if Lisa had been originally based at a training centre 20 miles away and only moved to the head office on 1 February 2025, then the position would be different. The move to the head office would be seen as a ‘substantial change’ and a new qualifying period would begin. As the head office was within a Freeport special tax site when Lisa moved, she will be eligible for relief. The period for claiming relief will end 36 months from when her employment began for example (31 May 2027), not from the date she moved to the Freeport special tax site.

Question 8

Are the employee’s earnings above the Freeport Upper Secondary Threshold?

You will have to pay secondary Class 1 National Insurance contributions on any amounts above the threshold.

The relief only applies to secondary Class 1 National Insurance contributions. Primary Class 1 National Insurance contributions do not benefit from the relief.

Question 9

What if your employees work at the premises of a customer which is in a Freeport special tax site?

Your employees would not qualify for relief. The employee must spend 60% of their time at both their employer’s and, if different, the secondary contributor’s business premises located within a Freeport special tax site.

Similarly, individuals who are within the IR35 rules and work at clients’ premises in a Freeport special tax site cannot claim relief.

Question 10

Are you using the correct National Insurance contributions category letter for each specific employee?

It is likely category letter ‘F’ will apply to many of your employees. However, I, S and L may also be used for employees working in a Freeport.

You must check you have applied the correct letter to each qualifying employee. You can find out more about National Insurance contributions category letters.

Question 11

Have you stopped using the Freeport National Insurance contributions category letter in the right payroll period?

Once an employee has been with you for 36 months (or they no longer meet the 60% condition), it is very important you revert them to the correct non-Freeport National Insurance contributions category letter.

The 36 month period starts on the day the employment begins not, for example, on the date the employee moves to a Freeport special tax site.

You must have a system in place to ensure the change of letter takes place.

For example

Steve starts a new employment on 1 April 2024 at a Freeport special tax site and spends 100% of his working time there. His employer can claim secondary Class 1 National Insurance contributions relief from 1 April 2024 to 31 March 2027.

From 1 April 2027 the employer must not use one of the Freeports National Insurance contributions category letters.

How to reduce the risk of making an error

If your business moves into or out of a premises located within a Freeport special tax site, make sure you use the relevant National Insurance contributions category letter for the right periods.
Implement a process to alert you when employees have been working for you for 36 months. You cannot continue to claim relief for employees once they have been employed for 36 months.
Monitor employees who only spend part of their time at your business premises within the Freeport special tax site to decide if they meet the 60% qualifying condition. This will help ensure you use the right National Insurance contributions category letter for the right periods.
If someone does not work full-time hours, you may need to do more calculations to check whether they’re at your business premises within the Freeport special tax site for 60% of their working time. You may also need to do the same if an employee has variable working hours.
Review your payroll National Insurance contributions category letters periodically. This may help you spot errors and identify employees for whom you should or should not be claiming secondary Class 1 National Insurance contributions relief for.
Provide the relevant teams for example (Payroll, Human Resources) within your business with sufficient training on these rules.

Record keeping

HMRC may conduct a compliance check on your business to ensure you are operating PAYE correctly. HMRC’s factsheet on Compliance Checks provides further information.

To demonstrate you have met the conditions, you must keep PAYE records for 3 years from the end of the tax year they relate to. This includes details of what you pay to your employees, the deductions you make and records of reports and payments you make to HMRC.

The following HMRC guidance provides further information:

Employers should keep evidence of their right to use the Freeport category letters. This evidence can be set out in a written agreement made between the Freeport employee and the employer. Any agreement should contain the following information:

the address and post code of your business premises and the Freeport special tax site that the employer expects the employee to spend 60% of their working time
the start date of the employment
if different from the start date, the date from which the employer expects the employee to spend 60% of their working time at the Freeport special tax site business premises

Other evidence may include:

contract of employment
time sheets or clock cards
computer log-on IP address
travel expense claims
appointment diaries

What to do if you make a mistake

It is anticipated employers will use these guidelines to determine if they are eligible to claim secondary Class 1 National Insurance contributions relief. Employers should correct any errors identified following the use of these guidelines. This includes correcting errors in the current and past years.

Where customers fail to meet their obligations, they may be subject to penalties, interest or a combination of both.

If you think you may have failed to meet your obligations, read the HMRC compliance factsheets on penalties to find out about:

penalties HMRC could use
when these penalties may apply

Interest will be charged from the date the original payment was due until the date it is actually paid.

If you identify an error in your Real Time Information (RTI) you sent to HMRC you can correct this. You should submit an amended Full Payment Submission (FPS) showing the relevant National Insurance category letter to correct the position. Further information on how to do this is included in ‘Fix problems with running payroll’.

If you require further help you should contact your Customer Compliance Manager (CCM). If you do not have one, you should refer to the information in the Next steps, further questions section.

Question 3

Enhanced structures and buildings allowance

Accepted Answer

These guidelines should not be considered comprehensive. More detail is in HMRC Capital Allowance Mannual.

What is the relief

Capital allowances are tax allowances which allow for a deduction in respect of qualifying capital expenditure. You apply these allowances to reduce your profits before calculating the amount of tax due for a period.

For non-residential structures or buildings, Structures and Buildings Allowance (SBA) is a capital allowance available for some costs of non-residential structures or buildings including:

construction
acquisition
conversion
renovation

SBA is intended to stimulate investment in the construction of new, non-residential structures or buildings and investment in the capital costs of renovations. The Structures and Buildings Allowance guidance sets out excluded costs as well as the following criteria:

conditions
activities
assets
use of the assets
costs

You can find technical guidance about SBA in the HMRC Capital Allowance Manual.

Enhanced SBA in special tax sites

Freeports incorporate special tax sites, offering an enhanced rate of SBA of 10% per year, on a straight line basis, of the qualifying expenditure on non-residential structures or buildings. Outside of a special tax site, SBA claims are 3% per year. The enhanced rate means the full amount of the expenditure may be relieved over 10 years, compared to 33 and one-third years outside of a special tax site.

The expenditure on renovation or conversion may qualify for enhanced SBA for special tax sites. This is the case even if the location was not a special tax site when construction of the original building or structure began and was completed.

Conditions to claim enhanced SBA in special tax sites

In addition to the conditions to claim SBA, the following conditions must be met to claim enhanced SBA in special tax sites.

Condition A

The construction of the building must begin when the area in which the building is situated is designated as a special tax site.

Condition B

The building must be first brought into qualifying use at a time when the area in which the building is situated is designated as a special tax site, and on or before:

30 September 2031 for special tax sites in respect of English Freeports
30 September 2034 for special tax sites in respect of Scottish Green Freeports and Welsh Freeports

Condition C

The qualifying expenditure must be incurred at a time when the area in which the building is situated is designated as a special tax site, and on or before:

30 September 2031 for special tax sites in respect of English Freeports
30 September 2034 for special tax sites in respect of Scottish Green Freeports and Welsh Freeports

Condition D

The person who incurs the qualifying expenditure must be within the charge to Income Tax or Corporation Tax when it is incurred.

Condition E

The allowance statement made by the person who incurred the qualifying expenditure, and relied on for the first valid claim for the enhanced SBA, must state that the person wants the qualifying expenditure to be special tax site qualifying expenditure.

The qualifying expenditure must be apportioned where a building or structure is situated partly inside a special tax site and partly outside a special tax site, or where only part of the building or structure is brought into use on or before:

30 September 2031 for special tax sites in respect of English Freeports
30 September 2034 for special tax sites in respect of Scottish Green Freeports and Welsh Freeports

HMRC’s guidance on special tax site qualifying expenditure contains more information on these additional conditions for the enhanced SBA.

Start and end dates

Your first claim to the enhanced SBA can only be for qualifying expenditure incurred on or after the date a special tax site is designated and before:

30 September 2031 for special tax sites in respect of English Freeports
30 September 2034 for special tax sites in respect of Scottish Green Freeports and Welsh Freeports

The date of the first construction contract will determine the date on which construction is treated as beginning for the purposes of the enhanced SBA.

You can claim enhanced SBA for a maximum of 10 years, starting from the later of:

the date on which the qualifying expenditure is incurred
the date that the building or structure comes into non-residential use by any person

Entitlement to enhanced SBA can end because:

the 10-year period ends
the building is brought into residential use
you cease to hold the relevant interest in the building or structure
the building or structure is demolished

Questions to ask before claiming this allowance

How to reduce the risk of making an error

Many common errors in capital allowances claims appear to arise because the claimant makes assumptions. You should fully check the facts of the transaction leading to a claim.

Rules applying to SBA and enhanced SBA include, but are not limited to:

you must have a valid allowance statement to claim — read the Record keeping section
you cannot carry forward the allowance, if you do not claim it in the right period, then that period’s allowance is lost

We recommend you consider:

Record keeping

HMRC may conduct a compliance check on your business to ensure you are claiming capital allowances correctly. We may do so if you are a business within a special tax site or outside one. HMRC’s factsheet on Compliance Checks provides further information.

It is particularly important to keep records relating to claims to SBA. In addition to the normal record keeping requirements that apply to UK businesses, there is an additional evidence requirement to claim SBA. You must hold and maintain an SBA allowance statement. If a valid allowance statement is not held or the expenditure cannot be evidenced, then the qualifying expenditure is reduced to zero.

There is an additional allowance statement requirement for enhanced SBA.

What to do if you make a mistake

If you believe you have identified an error, then you can correct this by:

Where customers fail to meet their obligations, they may be subject to:

penalties
interest
both penalties and interest

If you think you may have failed to meet your obligations, read the HMRC compliance factsheets on penalties to find out more.

Question 4

Enhanced capital allowances for plant and machinery

Accepted Answer

These guidelines should not be considered comprehensive. More detail is in HMRC’s technical guidance.

What is the relief

Capital allowances are tax allowances which allow for a deduction in respect of qualifying capital expenditure. Plant and Machinery allowances are a type of capital allowance.

Freeports incorporate special tax sites. Subject to certain conditions, companies can claim a 100% first-year allowance for qualifying expenditure for plant or machinery (P&M) that is unused and not second hand and is for use primarily in a special tax site at the time the expenditure is incurred. Check if you can claim the enhanced capital allowance relief in UK Freeport or Investment Zone special tax sites.

HMRC provides details of what counts as plant and machinery.

If you meet the qualifying expenditure conditions, you can claim enhanced capital allowances against the profits from your qualifying activity for the accounting period in which the expenditure is incurred. You make claims through the company tax return, in the same way as you would for any other capital allowance.

You can usually claim all the qualifying costs if the P&M is to be used primarily within a special tax site. However, there is an anti-avoidance rule that may apply to reduce the amount you can claim.

Qualifying plant or machinery expenditure normally includes the costs of:

acquisition
transport
installation

Start and end dates

The allowance can be claimed for qualifying expenditure incurred from the date a special tax site is designated, and on or before:

30 September 2031 for special tax sites in respect of English Freeports
30 September 2034 for special tax sites in respect of Scottish Green Freeports and Welsh Freeports

Withdrawal of relief

If the plant and machinery related to your claim for enhanced capital allowances is subsequently primarily used or held for use outside of a special tax site, there are rules which may mean the allowance is withdrawn. This means the expenditure is treated as never being qualifying expenditure for enhanced capital allowances. If a person becomes aware that a tax return has become incorrect as a result of the enhanced capital allowance being withdrawn, that person is required to give notice to an officer of HMRC with details of the corrections which need to be made. The notice must be given within 3 months of becoming aware the return has become incorrect.

You may be able to claim another capital allowance for the expenditure within the normal time limits for such claims.

Questions to ask before claiming this allowance

Question 1

Is your business within the charge to Corporation Tax?

Only companies within the charge to Corporation Tax are eligible for these enhanced capital allowances.

Question 2

Does your activity qualify?

Qualifying activities for this enhanced capital allowance are:

a trade
a concern listed in s39(4) of Corporation Tax Act 2009 (s39(4) CTA09)

Question 3

Is the P&M unused and not second hand?

You can only claim for qualifying P&M that is unused and not second hand. HMRC provides further commentary on the definition of unused in the Capital Allowances manual. The manual states “plant or machinery is unused and not second-hand even if it has undergone some limited use for the purposes of testing, delivery or demonstration.”

Question 4

When was the expenditure incurred?

The normal rule is that expenditure is incurred on the date on which the obligation to pay becomes unconditional. HMRC’s guidance contains further information on the date capital expenditure is incurred.

Expenditure must be incurred on or after the date the relevant special tax site was designated. Check the title plan and the relevant tax site map to ensure the Freeport business is fully within the tax site.

It must be incurred on or before the applicable sunset date and the claim must be made for the correct accounting period.

To qualify for a first-year allowance, the expenditure must have actually been incurred during the period in which the first-year allowance is in force. This first-year allowance can only be claimed for the accounting period in which the expenditure is incurred. You must also own (or be treated as owning) the P&M at some time during that period.

Question 5

How does this apply to leased assets?

You cannot normally claim plant and machinery allowances for assets you lease from others. This is because you do not own the assets. However, you may be able to claim for hire purchase and some similar arrangements, lease purchase contracts and right of use leases. You may also be able to claim for long funding leases. These arrangements can be complex, and you should take care with related claims.

If you buy assets that are for leasing or hiring out to others, you may be able to claim annual investment allowance or writing down allowances. You cannot usually claim first-year allowances, including the enhanced capital allowances for special tax sites.

An exception to this rule is if you provide a service in which you make use of the asset, one example may be providing a crane with an operator.

In this case, you may be able to claim first-year allowances including enhanced capital allowances for special tax sites.

Question 6

How do you treat pre-commencement expenditure?

The date that the pre-commencement expenditure was actually incurred is only relevant for the purposes of deciding whether expenditure qualifies for first-year allowances. For the purposes of claiming a first-year allowance, treat the qualifying expenditure as incurred on the day that the qualifying activity begins. This means the first-year allowance can only be claimed in the accounting period in which that date falls.

Question 7

Is the claimant company the person who incurred the expense and owns the P&M as a result?

Only the person who incurred the expense and as a result owns the P&M can claim. Errors can be made if another group company owns the asset.

Question 8

Is the qualifying expenditure incurred on P&M intended for use primarily in a special tax site?

At the time the expenditure is incurred, the P&M must be intended for use primarily in a special tax site.

Question 9

Is any of the expenditure excluded by the general exclusions from first-year allowances?

Two important exclusions are expenditure on plant or machinery provided for leasing and for expenditure on cars. Other capital allowances are available for business cars.

Question 10

Has any of the expenditure incurred been on the acquisition of assets from a connected person?

If an asset is acquired from a connected person, then the expenditure is not eligible for first-year allowances unless all of the following conditions are met:

the asset is new
the seller’s business includes manufacturing or supplying assets of that class
the asset is sold as part of the seller’s normal business

How to reduce the risk of making an error

Many common errors in capital allowances claims appear to arise because the claimant makes assumptions. You should fully check the facts of the transaction leading to a claim.

Rules applying to enhanced capital allowances for plant and machinery include, but are not limited to:

you must notify us within 3 months of the plant and machinery ceasing to be for primary use in a special tax site
the general exclusions from claims to first-year allowances also apply to this enhanced allowance
an asset first acquired for another purpose, or an asset received without the claimant company incurring the expenditure or owning the asset will not usually qualify for any first-year allowance

We recommend you consider:

if any of the anti-avoidance rules for P&M apply to your expenditure
our guide to avoiding errors in claims for plant and machinery allowances

Record keeping

HMRC may conduct a compliance check on your business to ensure you are claiming capital allowances correctly. We may do so if you are a business within a special tax site or outside one. HMRC’s factsheet on Compliance Checks provides further information.

You should keep detailed records. These records should contain information regarding all acquisitions and disposals including:

the name of any asset
date of acquisition
acquisition cost
date of disposal
value of asset on disposal or disposal receipts
contracts and receipts for acquisition and disposal

What to do if you make a mistake

If you believe you have identified an error, then you can correct this by:

amending your tax return online if you are within 12 months of the statutory filing date
your Customer Compliance Manager if you have one
making a voluntary disclosure to HMRC, explaining the error and calculating any liability — you should include the Guidelines for Compliance reference number (GfC14) as part of your disclosure

Where customers fail to meet their obligations, they may be subject to:

penalties
interest
both penalties and interest

If you think you may have failed to meet your obligations, read the HMRC compliance factsheets on penalties to find out more.

Question 5

Stamp Duty Land Tax, Land and Buildings Transaction Tax and Land Transaction Tax relief

Accepted Answer

What is the relief

You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland. In Scotland this is known as Land and Buildings Transaction TaxLBTT). In Wales it is Land Transaction Tax (LTT). We refer to Land Tax in the remainder of this section and this covers SDLT, LBTT and LTT.

There is relief from Land Tax on certain acquisitions of land and buildings in Freeport special tax sites.

SDLT relief will be available from the date tax site designation takes effect, until 30 September 2031. LBTT and LTT relief will be available from the date tax site designation takes effect, until 30 September 2034.

If 90% or more of the consideration is attributable to qualifying freeport land, then it qualifies for full relief. If between 10% and 90% of the consideration is attributable to qualifying Freeport land, then relief is applicable on that proportion.

You can read HMRC’s published guidance on this relief.

What are the qualifying conditions

You must check that the land is inside a Freeport tax site at the earlier of the:

time of completion
substantial performance of the contract

Substantial performance is the point at which:

any payment of rent is made
payment of most of the consideration other than rent is made
the purchaser takes possession of the whole, or substantially the whole, of the subject matter of the contract

‘Qualifying land’ is land that is situated in a Freeport special tax site, and which is intended to be used only in a “qualifying manner”.

A “qualifying manner” means:

used in the course of a commercial trade or profession
developed or redeveloped in the course of a commercial trade or profession
exploited in the course of a commercial trade or profession, as a source of rents or other receipts

HMRC’s Stamp Duty Land Tax manual provides further information on use of land in a “non-qualifying manner”.

Where a purchase includes land which falls outside of the tax site you must apportion the consideration on a just and reasonable basis. You may only claim relief on the proportion of the consideration attributable to qualifying Freeport land.

You must claim the relief on the SDLT return using relief code 36 at Question 9. Claims for relief must be submitted on or before 14 October 2032.

For information about:

Questions to ask before claiming the relief

Question 1

Is the land situated fully within a tax site?

Remember to check the title plan and the relevant tax site map to ensure the land is fully within the tax site.

If 90% or more of the consideration is attributable to “qualifying land”, all of the consideration for the land transaction qualifies for relief.

For example, a purchaser acquires 25 acres of land for £2,500,000.

20 of the acres are situated inside the Freeport special tax site and are intended for use in a qualifying manner – meaning that these 20 acres count as qualifying land. The other 5 acres are situated elsewhere outside the Freeport special tax site.

The 20 acres of qualifying land is however valued on a just and reasonable basis at £2,375,000 (95% of the consideration for the purchase).

Relief will be available for the whole £2,500,000 paid because 90% or more of the consideration is attributable to qualifying land.

Question 2

If there is land outside the tax site, what percentage of the consideration is attributable to “qualifying land”?

You will need to attribute the consideration to the “qualifying land” on a just and reasonable basis.

Question 3

Does the intended use of the land fall into one of the following categories? For example:

used in the course of a commercial trade or profession
developed or redeveloped in the course of a commercial trade or profession
exploited in the course of a commercial trade or profession, as a source of rents or other receipts

Relief is withdrawn if any qualifying land ceases to be used in a qualifying manner by any of the purchasers during the control period.

For example

A purchaser buys 40 acres of ‘mixed’ land in a Freeport special tax site costing £400,000. All of it is inside a Freeport special tax site. 30 acres are intended to be used in a qualifying manner and the relief was applied accordingly.

Two years after acquisition the purchaser ceased to use one of the 30 acres of the qualifying land in a qualifying manner. A further return, and the tax for the whole 40 acre purchase less any tax already paid, became due and payable 30 days from the day the change occurred.

How to reduce the risk of making an error

You must ensure that you are clear on whether the land is fully within, partially within or outside of the tax site. You can access the relevant tax site maps to check this.

You should consider implementing an annual process to review continuing eligibility.

Record keeping

The relevant authority may conduct a compliance check to ensure that a Freeport relief claim is correct. HMRC’s factsheet on Compliance Checks provides further information for SDLT.

To demonstrate that the qualifying conditions for the relief have been met you should keep relevant records and documentation for six years from the date of the transaction. Relevant records include, but are not limited to:

planning permission applications
site plans
Health and Safety Executive FS10 form
construction method statements
construction phase plans
inspection reports

What to do if you make a mistake

If you make a mistake and incorrectly claim relief, you should contact the relevant authority to:

disclose the error
amend the return
pay any Land Tax that may be due

Contact details:

Stamp Duty Land Tax

Land Buildings Transaction Tax

Land Transaction Tax

You must tell the relevant authorities as soon as you realise you’ve underpaid Land Tax. You should pay the additional Land Tax as soon as possible quoting the Unique Transaction Reference Number of the transaction. If you do not, you may have to pay a penalty. You’ll have to pay interest on any Land Tax that you pay late.

Question 6

VAT

Accepted Answer

Most Freeports will include at least one designated customs site (known in UK legislation as a “free zone”) run by a customs site operator. Authorised businesses can take advantage of the Freeport VAT benefits. The Freeport VAT reliefs only apply within the customs site of the Freeport. More information on what a Freeport customs site is, can be found in the Customs and Excise benefits section of these guidelines.

What are the benefits

Authorised businesses operating inside a customs site can store, manufacture, repair, process, sell and generally add value to imported goods. Goods that have been declared to the Freeport customs special procedure will become free zone goods and benefit from suspended import VAT.

The supply of free zone goods between authorised businesses in a customs site can take place with import VAT remaining suspended. The place of supply on these free zone goods is the UK. Supplies of goods and services between authorised businesses within the customs site may be zero-rated if the qualifying conditions are met.

Domestic goods can also be held in a customs site and used in any processing activity. They must be combined with free zone goods by an authorised person within the customs site to qualify as free zone goods.

The VAT reliefs provide a cash-flow benefit as authorised businesses can utilise suspension of import VAT as well as applying the zero-rate of VAT to eligible supplies of goods and related services in the customs site. Zero-rating is only available in the customs site and not in the wider Freeport area.

Where free zone goods are declared to free circulation (home use) in the UK, import VAT will generally need to be paid. Import VAT on these goods declared into free circulation is normally charged at the same VAT rate as if they had been supplied in the UK. You should read our guidance pages for more help working out the customs value of your imported goods.

Where goods are exported from a customs site, you can zero-rate the sale of goods if you obtain and retain evidence of the export and comply with all other conditions. You must also make sure the goods are exported, and you must get evidence within 3 months from the time of sale. You should read our guidance page for more information in VAT Notice 703— VAT on goods exported from the UK.

If you do not apply to use the Freeports customs special procedure and are using an existing customs Special Procedure, the usual VAT rules for that procedure will apply to pay less or no duty on goods you store, repair, process or temporarily use.

What are the qualifying conditions

You must be a business authorised to either:

Declare goods to the Freeport customs special procedure.
Carry out a free zone activity (per reg 3(2)(c) SI2018/1249), meaning any industrial service and, or commercial activity in relation to goods located in a free zone including, but not limited to, manufacturing, processing, assembly, repacking, labelling, distribution and storage.

Read our guidance page on how to apply to use the UK Freeport customs special procedure.

Goods only become free zone goods once they have had a declaration to the Freeport customs special procedure accepted by HMRC. Imported goods that have not been cleared by customs are not allowed to be within the area identified as the customs site.

You can move goods into, or store goods in, a customs site if they are not excluded goods. check if your goods can be moved into a UK Freeport customs site.

When selling between authorised businesses in a customs site, both businesses must either be registered for VAT or have been exempted from VAT registration for the zero-rate to apply. A business may be exempted from VAT registration because it has satisfied HMRC that the only taxable supplies it makes are supplies that are subject to the zero-rate of VAT. If your turnover is below the VAT registration threshold, you can choose to register voluntarily. Read our guidance on when and how to register for VAT. For the zero-rate to apply, the business supplying the goods must be authorised to make the supply.

Where a chain of transactions take place between authorised businesses in the customs site these will be eligible for zero-rating provided the goods are under the Freeport customs special procedure. An onward supply from an authorised business to either a business or consumer outside the customs site will not be eligible for zero-rating under the Freeport customs special procedure.

An ‘exit charge’ will also need to be paid after free zone goods are declared to free circulation, unless a further taxable supply of those goods is made within 3 months.

You can zero-rate a supply of services when it is a relevant service. A relevant service is an activity wholly performed on or in relation to goods subject to the Freeport customs special procedure by a person authorised to do so. The supplies of services must be a kind that would ordinarily be taxable, apart from under customs site provisions.

When you issue a VAT invoice for zero-rated goods or services, it must include the reference ‘free zone’.

You should read declaring goods and paying tax when using a UK Freeport customs site for more information on when:

you may be able to apply the zero-rate of VAT in a Freeport customs site
a person receiving the zero-rated goods may have to account for output tax as an exit charge

Questions to ask before applying the zero-rate

Question 1

Are you an authorised business operating inside a customs site?

Remember, you must be a business that is authorised to declare goods to the Freeport customs special procedure or carry out activities on those goods.

Question 2

Have the goods been declared to the Freeport customs special procedure upon entry to the UK?

Only goods that have been declared to the Freeport customs special procedure can be free zone goods with import VAT suspended.

Question 3

Are the goods prohibited from being declared to the Freeport customs special procedure?

You can only move goods into, or store goods in, a Freeport customs site if they are not excluded goods.

Question 4

If you are selling to an authorised business in a Freeport customs site, are you and the other business registered for VAT or exempted from registration because only zero-rated supplies are made or intended to be made?

Both businesses must either be registered for VAT, or exempted from registration, for the zero-rate to apply. You should check a UK VAT number.

Question 5

Have you included reference to a ‘free zone’ on any invoices you issue for zero-rated goods or services?

This enables the recipient of the invoice to know that the supplier considers the supply to meet the conditions for zero-rating.

Question 6

Are the free zone goods within the Freeport customs site?

Zero-rating is only available in the customs site and not in the wider Freeport area.

Question 7

Are you making relevant supplies of services on free zone goods?

You can zero-rate supplies of services if the service:

is performed in the customs site or is in relation to goods declared to the Freeport customs special procedure
would be taxable (and not zero-rated), apart from under the customs site VAT provisions
has been performed by an authorised person

The receiver of the service must tell the supplier in writing (for example, by email or letter) that the conditions for the zero-rate are met and zero-rate applies.

Questions to ask to determine if the exit charge is due

Question 8

Have the free zone goods been declared to free circulation (home use) in the UK?

In addition to any import VAT due, VAT (in the form of an exit charge) may need to be paid when the goods are declared to free circulation, unless a further taxable supply is made within three months.

Question 9

Have you met all the conditions that mean a self-supply (or ‘exit charge’) needs to be accounted for?

These conditions are met where:

you have received a supply of goods or services within the customs site which are zero-rated under the Freeport customs special procedure
you did not make a zero-rated supply of the goods (received or in relation to which those services were performed) within the customs site
the goods have been declared to free circulation
you have not made an onward taxable supply of those goods within 3 months of the declaration to free circulation

In such circumstances, you will need to account for output tax. If you received services, the value on which output tax is calculated will be identical to the zero-rated supply of services received. If you received goods, the value will be identical to the zero-rated supply of goods received. You may also be able to claim back any input tax arising on the self-supply in line with the usual VAT rules.

Understanding these rules and implementing a process to monitor when these conditions are met will help reduce the risk of error.

Record keeping

Goods that have been declared into a Freeport customs special procedure will benefit from suspended import VAT and therefore record keeping must evidence this. For general record keeping requirements for goods entering a customs site, refer to the Customs and Excise benefits section of these guidelines.

HMRC will periodically check that the terms of both the customs site operator authorisation and the Freeport customs special procedure are being complied with. This may involve HMRC physically visiting a site to inspect goods.

For zero-rated supplies of services in a customs site, the receiver of the service must tell the supplier in writing (for example, an email or letter) that the conditions for the zero-rate are met and zero-rate applies.

When you issue a VAT invoice for zero-rated goods or services under a Freeport customs special procedure, it must include the reference ‘free zone’.

For more information on what records you must generally keep and how to keep them when you’re registered for VAT, read record keeping (VAT Notice 700/21).

HMRC may conduct a compliance check on your business to ensure that you have control over your goods and are treating them correctly for the purposes of VAT.

It is likely that HMRC will need further information to check the VAT position if the:

goods do not appear to be owned by the person reclaiming import VAT
goods are being declared incorrectly
customs site operator records are inaccurate or out-of-date
goods under the Freeport customs special procedure do not appear to be under control

You can read more information about HMRC’s Compliance checks factsheets for:

What to do if you make a mistake

If you read these guidelines and determine that you should correct a submitted return in relation to this issue, follow the error correction notice process outlined in VAT Notice 700/45.

When correcting a VAT return because of the information in these guidelines, include the Guidelines for Compliance reference number (GfC14) in the ‘reason for error’ box.

If you have overpaid import VAT, check how to claim a repayment of import duty and VAT if you’ve overpaid.

Question 7

Business rates relief

Accepted Answer

If your business is based in a Freeport you may qualify for business rates relief.

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