This is the third UK Covid-19 related State aid scheme approved by the EU Commission and is formally known as the COVID-19 Temporary Framework for UK Authorities (the "Covid Umbrella Scheme"). Despite Brexit, the EU still retains its State aid role in the UK during the transition phase. The Covid Umbrella Scheme is made under the EU's Covid-19 Temporary Framework.
The Covid Umbrella scheme will underpin a number of initiatives already announced by the UK Government. More importantly it provides flexibility for the UK public sector to respond to the unfurling crisis with new schemes at a national and regional level together with bespoke interventions to assist businesses or support Covid R&D and the production of products and equipment to tackle the medical crisis.
Two other approved UK Covid-19 related State aid schemes are narrower in scope and deal with guarantees and grants for funding arranged by the Government-owned British Business Bank.
The Covid Umbrella Scheme has two important features which make it more relevant to a wider range of businesses and public authorities:
- The Covid Umbrella Scheme permits aid to "Large Corporates", whereas the previous two schemes only applied to SMEs.
- The Covid Umbrella Scheme allows aid to be granted by most, if not all, UK public authorities including central government, devolved governments, regional, local authorities and other bodies administering schemes involving state resources.
We would expect that in the majority of cases the Covid Umbrella Scheme will be the "go to" measure for public authorities looking to grant support to businesses be they struggling with Covid-19 related disruption or corporates or SMEs looking to undertake Covid-19 R&D or produce respirators.
What forms of aid can be granted?
The UK public is not obliged by the Covid Umbrella Scheme to provide particular forms of support. The legal change is that it can do so (without seeking EU approvals) providing that support does not exceed the limits set out in the EU's Covid-19 Temporary Framework. Forms of likely aid/support:
- Direct grants, equity injections and advance payments
- Subsidised public loans to companies
- State guarantees for loans taken by companies
- Support for coronavirus related research and development
- Support for the construction and upscaling of testing facilities
- Support for the production of products relevant to tackle the coronavirus outbreak
- Targeted support in the form of deferral of tax payments and/or suspension of social security contributions
- Targeted support in the form of deferral of tax payments and/or suspension of social security contributions; and/or selective tax advantages
- Targeted support in the form of wage subsidies for employees
- Public short-term export credit insurance
What conditions are attached to the aid?
Any grants, guarantees or loans under the Covid Umbrella Scheme must be made before 31 December 2020, although such date is subject to review of the Temporary Framework (which may be extended) and/or the extension of the UK's transition period.
The EU Temporary Framework places conditions on all types of aid, below are some (not all) of the specific conditions that must be met in any case for direct grants, guarantees on loans and public loans to companies, Aid/support given under the UK's Covid Umbrella scheme must comply with these conditions.
An important condition that applies across the board to aid under the Umbrella Scheme is that the recipient must not have been insolvent or "in difficulty" on 31 December 2019 and that aid must be granted by 31 December 2020 (which may be extended).
Direct Grants, targeted/selective tax advantages, advanced payments:
- These together must not exceed €800,000 (as a gross figure) plus up to €200,000 De Minimis aid
- Specific conditions apply to agricultural and fishery sectors
Guarantees on loans
- The guarantee premiums are set in the Temporary Framework
- Guarantees for loans with a maturity beyond 31 December 2020 the amount of the loan principal is limited to (a) double annual wage bill of 2019 (or last year available, or expected wage bill if none available); (b) 25% annual turnover in 2019; or (c) on a case by case basis where justified on the basis of liquidity needs of SMEs for 18 months or large corporates for 12 months
- Guarantees must be limited to 6 years and may only cover limited percentages in certain circumstances depending on the status of the guarantee
Subsidised interest rates for loans
- Rates must be on the basis of 1 year IBOR or reference rates set by the commission plus credit risk margins set in accordance with the borrower's size and term of the loan
- Loan contracts must be signed by 31 December 2020 and limited to maximum 6 years
- Loan principal set in relation to the size and financial strength of the borrower (but exemptions apply)
Non-State aid routes
Some measures will not involve state aid as they won't favour one business over another – i.e. offering all businesses operating in the UK a tax or business rate reduction.
The public sector also has been issued with guidance to support its contractors/suppliers during the current health emergency. PPN 02/20 suggests using existing contract mechanisms to vary obligations or grant contractors temporary relief. Providing these changes are structured correctly they should remain both public procurement and state aid compliant.
Full details of the UK Covid19 Umbrella scheme will soon be published. We will provide updates to clients to assist them utilise the scheme.
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