The EU state aid rules no longer apply to subsidies granted in the UK following the end of the transition period 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 is 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.
Updated COVID-19 business grants subsidy allowances based on the TCA
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, the COVID-19 business grant allowance and the COVID-19 business grant special allowance.
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 2021. 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.
The Subsidy Control Act
To the extent that a local authority is seeking to provide relief that falls below the Minimal Financial Assistance (MFA) thresholds, the Subsidy Control Act allows an economic actor (eg a holding company and its subsidiaries) to receive up to £315,000 in a three-year period (consisting of the 2023-24 year and the two previous financial years). MFA subsidies cumulate with each other and with other subsidies that fall within the category of 'Minimal or SPEI financial assistance'. Expanded Retail Discount granted in 2021/22 does not count towards the £315,000 allowance but BEIS COVID-19 business grants and any other subsidies claimed under the Small Amounts of Financial Assistance limit of the Trade and Cooperation Agreement count under the £315,000 allowance.
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' 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.
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 the COVID-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).