Government coronavirus support impact on state aid
Emma Rawson looks at how state aid can affect claims for R&D tax credits or the employment allowance, and the implications for the government’s coronavirus business support packages.
Many businesses and their advisers may never have had to worry about state aid before. However, the coronavirus-related government support package and changes to how the employment allowance claimed are likely to change that.
What is state aid?
The EU state aid rules are rather complex but, in essence, they are designed to prevent member states introducing measures which may otherwise distort competition within the single market.
Broadly, a measure will constitute state aid if it is an advantage granted by a member state on a selective basis that could distort competition and trade in the EU. That includes grants, loans or tax breaks only available to businesses of a certain size, or to certain sectors or industries.
Where a member state believes that a form of state aid would deliver growth or other important objectives, it can request approval from the EU. This is often referred to as notified state aid.
Alternatively, a scheme which will only give small amounts of aid can be designated as de minimis state aid. Whilst this removes the need for EU approval, there is a ceiling on how much de minimis aid you can receive. For most businesses, this will be €200,000 over a three-year rolling period – although much lower levels apply for the agriculture, aquaculture and fisheries, and road haulage sectors.
Why does it matter?
Receiving state aid can affect the ability to claim certain tax reliefs such as employment allowance (EA) and R&D tax relief.
From 6 April 2020, the EA is only available to employers with a secondary NICs liability below £100,000 in the previous tax year. This makes it state aid, which the government has chosen to classify as de minimis state aid.
For future years, employers will have to claim the EA each year through their Employer Payment Summary (EPS) as the claims will no longer automatically carry forward as they have in the past. When making a claim for EA, employers will be asked to confirm that they have sufficient headroom in their de minimis ceiling(s) to accommodate the full EA of £4,000. Being in receipt of significant de minimis state aid could prevent the EA from being claimed.
The receipt of state aid can also restrict the ability to claim R&D tax relief under the SME regime. Very broadly, an R&D project will be completely excluded if notified state aid is received in respect of it, and any expenditure covered by de minimis state aid is not eligible for relief.
How do you know?
How does a business know if it has received state aid and, if so, what type it is?
Any business receiving assistance that was state aid should have been informed of this at the time and told whether it is notified, or de minimis. However, businesses may not always have the original paperwork to hand, especially when it comes to looking back three years for the purposes of the de minimis ceiling. Unfortunately, there is no list or register of state aid which can be consulted, so it may be a case of applying best judgement or seeking to confirm with the awarding body if in doubt.
Finally, although state aid is an EU measure, we do still need to worry about it during the Brexit transitional period – which is currently due to expire on 31 December 2020.
Coronavirus and state aid
The government has announced a number of coronavirus related grants, loans and tax breaks, some of which will be state aid. The complete picture is still emerging, but at the time of writing we know:
- the Small Business Grant Fund (SBGF) is de minimis state aid;
- the Coronavirus Business Interruption Loan Scheme (CBILS) and Retail, Hospitality and Leisure Grant Fund (RHLGF) are notified state aid under the European Commission’s new temporary framework.
Claiming the SBGF could therefore potentially affect EA eligibility. However, HMRC has indicated that, where the de minimis ceiling has or would be reached by accepting the SBGF, the grant can be received as notified state aid under the EU’s coronavirus temporary framework, instead – provided that the applicable conditions are met. More information can be found in the official grant funding guidance.
With regard to CBILS, HMRC has confirmed that relief cannot be claimed under the R&D SME scheme if the CBILS relates specifically to the company’s R&D expenditure on a project, rather than being intended more generally to support the company. The position is presumably the same for the RHLGF.
Businesses in receipt of these, or any other assistance, will need to check the accompanying paperwork carefully to determine whether the assistance they have received is state aid or not, and decide how this might affect their ability to claim any relevant tax reliefs.
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Emma a technical officer with the Association of Tax Technicians (ATT). Her background is in corporation tax and she also has a focus on VAT.
She trained with Deloitte, working in both their London and Leeds offices, and also spent a short time working in a specialist consultancy firm providing advice to other practitioners before joining...