State aid in the time of coronavirus
Emma Rawson assesses which coronavirus business support schemes are classified as EU state aid and what that means for UK businesses who take advantage of those schemes.
The UK government has put in place an unprecedented package of support for businesses during the coronavirus crisis. Whilst these measures may provide a much-needed lifeline, there have been concerns that they could lead to state aid headaches for those businesses that benefit from them.
What is state aid?
Broadly, a measure will constitute state aid if it:
- is an advantage granted by an EU member state
- on a selective basis, and
- could distort competition and trade in the EU
This includes, for example, 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 state aid is needed in order to deliver growth or other important objectives, they can request approval from the EU. This is often referred to as notified or approved state aid.
Alternatively, a measure 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 (lower levels apply for the agriculture, aquaculture and fisheries and road haulage sectors).
State aid and coronavirus
To assist member states in supporting businesses affected by coronavirus, the EU has established a temporary framework. This sets out a number of temporary state aid measures that are considered compatible with the EU’s internal market, and which can be approved very rapidly upon notification by a member state, including:
- direct grants, repayable advances and tax advantages
- guarantees on loans and subsidised interest rates
- R&D support / infrastructure investment
- tax deferrals
- wage subsidies
Each of these comes with its own distinct terms and conditions which need to be complied with, both in order for measures to be approved under the temporary framework in the first place, and for those businesses that seek to claim them.
What does this mean for UK coronavirus support?
Although state aid is an EU measure, here in the UK we do need to worry about it during the Brexit transitional period – which is currently due to expire on 31 December 2020.
We understand that most UK coronavirus-related support will fall into one of the following categories:
- Not state aid
Some business support schemes are not state aid as they are universally available and not restricted to businesses of certain size, sector or region. This includes:
In addition, government guidance indicates that the business rates relief for retail, leisure and hospitality and childcare nurseries is not state aid given the impact of coronavirus on those sectors.
- De minimis aid
Amounts received under the Small Business Grants Fund (SBGF) are classed as de minimis state aid, meaning they count towards the usual limit of €200,000 (lower for agriculture, aquaculture and fisheries and road haulage) over a three-year rolling period.
When claiming the SBGF, the local authority should ask the business to complete a de minimis declaration confirming that it will not exceed the state aid threshold. However, if claiming would take the business over the threshold, it can instead opt to receive the grant as approved aid under the temporary framework (see below).
- Approved under the temporary framework
The following measures are state aid, but they have been approved under the temporary framework, subject to certain conditions and limits:
- retail, hospitality and leisure grant fund (RHLGF)
- coronavirus business interruption loan scheme (CBILS) interest and other direct payments (but not guarantees – see below)
- bounce back loans
- statutory sick pay (SSP) reclaims
- SBGF claims that would exceed the de minimis cap (see above)
Importantly, all of the above are subject to an overall combined cap of €800,000 per undertaking (lower levels apply for agriculture, aquaculture and fisheries), and claimants must not have already been in difficulty (see below) on 31 December 2019.
- Approved under the temporary framework – no cap
The following are also state aid which has been approved under the temporary framework, but we understand that they are not subject to the €800,000 cap:
- self-employment income support scheme (SEISS)
- CBILS loan guarantees
It is worth noting that, whilst the €800,000 cap does not apply to CBILS guarantees, the claimant must not have been in difficulty on 31 December 2019.
What should businesses do?
The good news is that those who are only claiming under the CJRS, receiving business rates relief and/or deferring tax payments are unlikely to have to consider state aid implications. However, those benefitting from other measures do need to stay alert.
In particular, if a business receives any support which is either de minimis or subject to the temporary framework cap, it should ensure that it doesn’t unintentionally exceed either of the two separate thresholds.
Note that the thresholds for both of these are expressed in euros (and not £) and lower thresholds can apply in agriculture, fisheries and road haulage. In addition, de minimis aid needs to be looked at over a three-year rolling window taking into account other, non-coronavirus related de minimis aid claimed (such as the employment allowance).
Businesses looking to claim support in the form of the RHLGF, CBILS, bounce back loans or SSP repayments also need to first check that they were not ‘already in difficulty’ on 31 December 2019. You can find more guidance on exactly what this means on gov.uk.
In my previous article I highlighted the interaction between any de minimis or temporary framework state aid measures and the availability of other tax reliefs, in particular the employment allowance and SME R&D relief. What at first seems like a much welcomed benefit could have unintended consequences.
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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...