COVID-19 BUSINESS GRANT - STATE AID AND UK SUBSIDY ALLOWANCE GUIDANCE
The EU State aid rules no longer apply to subsidies granted in the UK following the end of the transition period, which ended on 31 December 2020.
This does not impact the limited circumstances in which State aid rules still apply under the Withdrawal Agreement, specifically Article 10 of the Northern Ireland Protocol. The United Kingdom remains bound by its international commitments, including subsidy obligations set out in the Trade and Cooperation Agreement (TCA) with the EU.
On Thursday 4 March 2021, new subsidy allowances were established for the COVID-19 business grants schemes, on the basis of the principles set out in Article 3.4 of the TCA.
UK SUBSIDY OR STATE AID ALLOWANCES BY ELIGIBILITY PERIOD
Depending on the date grants were awarded to your business, you may be subject to different State Aid or UK Subsidy rules, as explained below:
1 August 2020 to 7 December 2020
Payments could be provided under De Minimis rules to any one organisation over a three fiscal year period, provided doing so did not exceed the €200,000 De Minimis threshold.
When the De Minimis limit was reached, the COVID-19 Temporary Framework for UK Authorities enabled payments to be made up to the nominal value of €800,000 per company. This could be combined with De Minimis aid (to bring the aid per company to up to €1,000,000) and with other specific types of aid.
8 December 2020 to 3 March 2021
In addition to the allowances for businesses between 1 August 2020 and 7 December 2020, from 8 December 2020, a Local Authority could provide a grant to a business under Section 3.12 of the Temporary Framework where the business had reached its limit for aid under De Minimis and the €800,000 limit under the Temporary Framework, provided certain conditions were met. Local Authorities should refer to the amended COVID-19 Temporary Framework for UK Authorities and the European Commission Temporary Framework Fourth Amendment for the conditions set out in full. The overall value of grant support could not exceed €4,000,000 in total.
Other grant eligibility principles that applied during this period are also to be enforced. For example, eligible businesses that had a voluntary agreement but were not in liquidation or administration would be eligible to receive a grant if they were still trading and operating but not if the grant was provided under the COVID-19 Temporary Framework for UK Authorities. Businesses that were in administration, insolvent, struck off or where a striking-off notice was made were not eligible for funding under this scheme.
4 March 2021 onwards
From 4 March 2021, payments can be provided under the Small Amounts of Financial Assistance Allowance (SAFA). This is equivalent to approximately £335,000, but the precise amount can be accessed via the Special Drawing Right calculator.
Where the Small Amounts of Financial Assistance Allowance has been reached, businesses can utilise the COVID-19 Business Grant Allowance to access additional grant funding of £1,600,000.
Where the Small Amounts of Financial Assistance Allowance and the COVID-19 Business Grant Allowance limits have been reached, businesses can utilise the COVID-19 Business Grant Special Allowance to access additional grant funding of up to £9,000,000, if conditions are met.
UK SUBSIDY ALLOWANCES, PROVIDED ON THE BASIS OF THE TCA
Applies to all grant payments made from 4 March 2021
The below scheme rules should be applied to applicants at the level of economic actor, which is defined as an entity or a group of entities constituting a single economic entity regardless of its legal status, that is engaged in an economic activity by offering goods or services on a market.
There are three subsidy allowances for this scheme set out below:
Small Amounts of Financial Assistance Allowance
Grants may be paid in accordance with Article 3.2(4) of the TCA, which enables an applicant to receive up to a maximum level of subsidy without engaging Chapter 3 of the TCA. This allowance is €325,000 Special Drawing Rights, to a single economic actor over any period of three fiscal years, which is the equivalent of £335,000 as at 2 March 20211. An applicant may elect not to receive grants under the Small Amounts of Financial Assistance Allowance and instead receive grants only using the below allowances available under this scheme.
Covid-19 Business Grant Allowance
Where the Small Amounts of Financial Assistance Allowance has been reached, grants may be paid in compliance with the Principles set out in Article 3.4 of the TCA and in compliance with Article 3.2(3) of the TCA under the COVID-19 Business Grant Allowance (subsidies granted on a temporary basis to respond to a national or global economic emergency). For the purposes of these scheme rules, this allowance is £1,600,000 per single economic actor. This allowance includes any grants previously received under the COVID-19 business grant schemes and any State aid previously received under Section 3.1 of the European Commission’s Temporary Framework across any other UK scheme.
This may be combined with the Small Amounts of Financial Assistance Allowance to equal £1,935,000 (subject to the exact amount applicable under the Small Amounts of Financial Assistance Allowance using the Special Drawing Right calculator).
Covid-19 Business Grant Special Allowance
Where an applicant has reached its limit under the Small Amounts of Financial Assistance Allowance and COVID-19 Business Grant Allowance, it may be able to access a further allowance of funding under these scheme rules of up to £9,000,000 per single economic actor, provided the following conditions are met:
- The Special Allowance covers only the applicant’s uncovered fixed costs incurred during the period between 1 March 2020 and 31 March 2022, including such costs incurred in any part of that period (‘eligible period’);
- Applicants must demonstrate a decline in turnover during the eligible period of at least 30% compared to the same period in 2019. The calculation of losses will be based on audited accounts or official statutory accounts filed at Companies House, or approved accounts submitted to HMRC which includes information on the applicant’s profit and loss;
- ‘Uncovered fixed costs’ means fixed costs not otherwise covered by profit, insurance or other subsidies;
- The grant payment must not exceed 70% of the applicant’s uncovered fixed costs, except for micro and small enterprises (for the purposes of this scheme defined as less than 50 employees and less than £9,000,000 of annual turnover and/or annual balance sheet), where the grant payment must not exceed 90% of the uncovered fixed costs;
- Grant payments under this allowance must not exceed £9,000,000 per single economic actor. This allowance includes any grants previously received in accordance with Section 3.12 of the European Commission’s Temporary Framework; all figures used must be gross, that is, before any deduction of tax or other charge;
- Grants provided under this allowance shall not be cumulated with other subsidies for the same costs.
An applicant must be able to provide the necessary documentation to demonstrate it is eligible for funding under this COVID-19 Business Grant Special Allowance. Local Authorities must first verify that an applicant can meet all the criteria set out under this allowance before providing further funding under this allowance.
Grants provided in excess of the Small Amounts of Financial Assistance Allowance may not be granted to applicants that were defined as an ‘undertaking in difficulty’ (as defined in Annex B below) on 31 December 2019. In derogation to the above, grants can be granted to micro or small enterprises (as defined above) that were already in difficulty on 31 December 2019 provided that they are not subject to collective insolvency proceedings.
Article 10 of the Northern Ireland Protocol
Grants in scope of Article 10 of the Northern Ireland Protocol remain subject to EU State aid rules, following the end of the Transition Period which ended on 31 December 2020. Article 10 provides that EU State aid rules will continue to apply to the UK in respect of measures which affect trade in goods and electricity between Northern Ireland and the European Union.
In assessing whether Article 10 may apply, Local Authorities are directed to Section 7 of the technical BEIS Guidance which covers the practical application of Article 10. Local Authorities applying Article 10 must follow Section 7 of the technical BEIS Guidance.
For the avoidance of doubt, grants under the Small Amounts of Financial Assistance Allowance, the COVID-19 Business Grant Allowance and the COVID-19 Business Grant Special Allowance may be combined for a potential total allowance of £10,935,000 (taking into account all grants previously received under theCOVID-19 business grants schemes and subject to the exact amount applicable under the Small Amounts of Financial Assistance Allowance using the Special Drawing Right calculator).
EU STATE AID RULES
Applies to all grant payments made in the period before 4 March 2021
Confirmation of State Aid received under the Covid-19 Temporary Framework for UK Authorities Scheme -
Following the outbreak of the Coronavirus, the European Commission has approved schemes to aid businesses affected by the Coronavirus outbreak on the basis of their Temporary Framework, including the COVID-19 Temporary Framework scheme for the UK.
The maximum level of aid that a company may receive is €800 000 (€120 000 per undertaking active in the fishery and aquaculture sector or €100 000 per undertaking active in the primary production of agricultural products). This is across all UK schemes under the terms of the European Commission’s Temporary Framework. The Euro equivalent of the Sterling aid amount is calculated using the Commission exchange rate2 applicable on the date the aid is offered.
Any aid provided under this scheme will be relevant if you wish to apply, or have applied, for any other aid granted on the basis of the European Commission’s Temporary Framework. You will need to declare this amount to any other aid awarding body who requests information from you on how much aid you have received. You must retain this letter for four years after the conclusion of the UK’s transition from the EU and produce it on any request from the UK public authorities or the European Commission.
Aid may be granted to undertakings that were not in difficulty (within the meaning of Article 2(18) of the General Block Exemption Regulation) on 31 December 2019, but that faced difficulties or entered in difficulty thereafter as a result of the COVID-19 outbreak. This undertaking in difficulty test does not apply to small and micro undertakings (less than 50 employees and less than EUR 10 million of annual turnover and/or annual balance sheet) unless they were already in insolvency proceedings, have received rescue aid that has not been repaid, or are subject to a restructuring plan under State aid rules.
This aid is in addition any aid that you may be have received under the De Minimis regulation allowing aid of up to €200,000 to any one organisation over a three fiscal year period (i.e. your current fiscal year and previous two fiscal years), and any other approved aid you have received under other State aid rules, such as aid granted under the General Block Exemption Regulation.
Difficulty in undertaking
‘Undertaking in difficulty’ means an undertaking in respect of which at least one of the following circumstances occurs:
- In the case of a limited liability company (other than an SME that has been in existence for less than three years) where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case where deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital. For the purposes of this provision, ‘share capital’ includes, where relevant, any share premium.
- In the case of a company where at least some members have unlimited liability for the debt of the company (other than an SME that has been in existence for less than three years) where more than half of its capital as shown in the company accounts has disappeared as a result of accumulated losses
- Where the undertaking is subject to collective insolvency proceedings or fulfils the criteria for being placed in collective insolvency proceedings at the request of its creditors.
- Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee or has received restructuring aid and is still subject to a restructuring plan.
- In the case of an undertaking that is not an SME, where, for the past two years: (1) the undertaking's book debt to equity ratio has been greater than 7.5 and (2) the undertaking's EBITDA interest coverage ratio has been below 1.0.
A business that is determined to be an ‘undertaking in difficulty’ can only receive grants up to the Small Amounts of Financial Assistance Allowance limit.