Investment Zone special tax sites with enhanced tax and National Insurance contributions reliefs
Published 15 March 2023
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Who is likely to be affected
Businesses investing and hiring new employees in special tax sites in or connected with Investment Zones.
General description of the measure
This measure will extend the power to designate geographic areas as special tax sites to allow designation of such sites in or connected with Investment Zones located in Great Britain. By extending the power, special tax sites in or connected with Investment Zones will now be able to benefit from a package of tax reliefs including Stamp Duty Land Tax (SDLT) relief, enhanced capital allowances for plant and machinery, enhanced structures and buildings allowances and secondary Class 1 National Insurance contributions (NICs) relief for eligible employers on the earnings of eligible employees up to £25,000 per annum.
Policy objective
This measure will enable special tax sites in or connected with Investment Zones to be designated and recognised in law as geographical areas where businesses can benefit from tax and NICs reliefs to incentivise investment and reduce the cost of hiring employees.
Background to the measure
The refocused Investment Zones programme is designed to grow the economy, whilst empowering local places and supporting levelling up, by building knowledge-intensive clusters which build on areas’ existing strengths.
The package of tax reliefs available in Investment Zones has been carefully designed to bring forward new investment by reducing the cost of doing business. Local government and research institutions will be able to select from a flexible menu of interventions, including the tax offer, when designing their Investment Zone proposal.
Detailed proposal
Operative date
The measure will come into effect from the date of Royal Assent of Spring Finance Bill 2023.
Current law
There is existing legislation in section 113 Finance Act 2021 which allows HM Treasury to use secondary legislation to designate Freeport tax sites in Great Britain which benefit from a package of tax reliefs.
Finance Act 2021 also inserted provisions into Parts 2 and 2A of the Capital Allowances Act 2001 for enhanced capital allowances for plant and machinery and enhanced structures and buildings allowances respectively and into Part 4 of the Finance Act 2003 for SDLT relief. National Insurance Contributions Act 2022 contains the provisions for a zero-rate of secondary Class 1 NICs for employers of eligible employees working in designated Freeport tax sites on earnings up to £25,000 per annum.
Proposed revisions
Section 113 Finance Act 2021 will be amended to allow special tax sites to be designated where those sites are in or connected with Investment Zones. Designating the special tax sites will allow those sites to benefit from the existing tax and NICs reliefs which currently apply in Freeport tax sites.
Provision will also be made to allow the date by which conditions need to be met for the purposes of the tax reliefs and NICs relief to be amended using secondary legislation.
Consequential amendments will be made to the provisions of the Capital Allowances Act 2001, Part 4 of the Finance Act 2003, National Insurance Contributions Act 2022 and Finance Act 2021 to enable special tax sites in or connected with Investment Zones to be able to benefit from the tax reliefs.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| 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 a future fiscal event.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is not expected to directly impact on individuals as it primarily affects businesses investing or hiring new employees in a special tax site.
The measure is expected to have a positive impact on potential employees who work in or live near a special tax site as it makes them more attractive to employers. This is through introducing a secondary Class 1 NICs relief on the earnings of eligible employees working in a special tax site. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
This measure will help to stimulate business investment in special tax sites and is expected to impact employers operating in special tax sites who will benefit from the secondary Class 1 NICs relief on earnings of eligible employees working in a special tax site. Businesses will need to assess their entitlement to the reliefs and claim them.
The scale of the impact on businesses will be assessed as the policy develops and the size and locations of Investment Zones are confirmed.
One-off costs could include a business and intermediaries having to spend time to make themselves aware of the change, updating software and upskilling staff as a result of the change. There are not expected to be any continuing costs for capital allowances and SDLT relief. Continuing costs in respect of the Class 1 NICs relief could include the cost of maintaining processes to monitor eligibility for the relief and record keeping.
Where civil society organisations invest in non-residential structures and buildings in special tax sites, they may choose to comply with evidence requirements so that, when they dispose of the asset, any subsequent owner may claim if entitled to do so. In addition, all civil society organisations and non-public sector organisations will be eligible for the secondary Class 1 NICs relief.
For capital allowances, this measure is expected overall to improve businesses’ experience of dealing with HMRC as claims will be filed over a shorter period, reducing their time spent on tax administration. For SDLT relief and the secondary Class 1 NICs relief, the customer experience is expected to remain broadly the same, as this measure does not affect how businesses interact with HMRC.
Overall, the measure is expected to deliver benefits for businesses through accelerated capital allowances, relief from SDLT and a reduction in the cost of employment.
Operational impact (£m) (HMRC or other)
Operational impacts for HMRC will be fully assessed when the Investment Zones and special tax sites are selected and announced. These impacts will include staff resources, changes to IT systems and guidance.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax/NICs returns and through engagement with stakeholders and communications with the affected taxpayer population.
Further advice
If you have any questions about this change, please contact:
- For SDLT relief stamptaxes.budgetfinancebill@hmrc.gov.uk
- For capital allowances contact.capitalallowances@hmrc.gov.uk
- For employer NICs relief nics.correspondence@hmrc.gov.uk