Regulations on special VAT and customs rules for freeport customs sites

Earlier this year, the UK announced the identity of eight freeport tax sites in England which would benefit from various special direct and indirect tax reliefs. The Free Zones (Customs, Excise and Value Added Tax) Regulations 2021 have now been made, which establish the customs and VAT rules that will apply to UK free zones (also known as freeport customs sites). Free zones are secure customs zones located within a freeport where business can be carried out inside the UK’s land border but where different customs, VAT and excise rules apply.

The regulations provide for the zero rating of supplies of goods and services between free zone businesses (that is, persons authorised to declare goods for entry into, or to carry out specified activities within, a free zone) within a free zone.

The main customs benefits of free zones are duty deferral (import duty is paid only when released for free circulation in the UK), duty exemption (where goods are entered into the free zone for storage or processing before being re-exported), duty inversion (where goods are entered into the free zone for processing and duty is paid based on the tariff for the finished product where this is lower than the tariff on the finished product's components) and simplified customs procedures.

UK Introduces Notification of Uncertain Tax Treatment Regime for Large Businesses from 1 April 2022

Proposed UK legislation in Finance (No. 2) Bill 2021-22 introduces the new uncertain tax treatment (UTT) regime which requires large businesses to notify HMRC where they have taken a tax position in a return that is uncertain. The new requirement has effect for returns within scope that are due to be filed on or after 1 April 2022.

This obligation will apply to companies and partnerships with a UK turnover of more than GBP200 million or a balance sheet of more than GBP2 billion and cover VAT, corporate tax or income tax.

A tax treatment is “uncertain” and notifiable if it meets one of the following conditions (subject to threshold and specific exemptions):

  • Condition 1: In accordance with GAAP principles, a taxpayer has recognised a provision that is uncertain (more probable than not that the filing position will not be sustained);
  • Condition 2: The tax treatment is not in accordance with HMRC’s known position (by reference to HMRC’s published material/guidance).

Businesses will only need to notify HMRC of uncertainties that exceed a 5m threshold.

DLA comment:

HMRC cannot currently identify all legal interpretation issues from returns. The new rules will facilitate earlier identification of high risk legal interpretation disputes and encourage businesses to address areas of uncertainty with HMRC either prior to the submission of returns or through notification under the regime.