Local government finance circular 4/2022 - non-domestic rates relief: guidance

This circular provides general information relating to current arrangements for non-domestic rates reliefs in 2022 to 2023. It also provides examples of supporting documentary evidence. The information was compiled with the involvement of officers from COSLA and the IRRV.

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Subsidy Control


13. The EU-UK Trade and Cooperation Agreement (TCA) is applicable from 1 January 2021. Under the TCA, the UK has established its own system of subsidy control. However, the UK's regime is not entirely exclusive to the EU's, and both are subject to common considerations.

14. All public authorities must have regard for commitments in the TCA, Withdrawal Agreement, Northern Ireland Protocol, WTO rules (including the Agreement on Subsidies and Countervailing Measures), and Trade Agreements between the UK and non-EU countries. Non-domestic rates reliefs, like other subsidy or support measures, may be subject to the conditions set out in these international agreements.

15. Relevant links are provided below:

Defining a Subsidy

16. It may be helpful to refer to the definition of a subsidy set out in Article 3.1 of the Subsidy Control chapter of the TCA[3]. A subsidy:

  • arises from the resources of a public authority at any level – central, devolved, local government or a public body. This could be a financial or an in-kind contribution – for example, grants, loans at below market rate, or a loan guarantee at below market rate or allowing a company to use publicly owned office space rent free.
  • confers an economic advantage on one or more economic actors. An economic actor is any entity that (regardless of its legal status) offers goods or services on a market. A government department or a charity could be an economic actor if they are acting commercially.
  • is specific insofar as it benefits, as a matter of law or fact, certain economic actors over others in relation to the production of certain goods or services.
  • has, or could have, an effect on international trade or investment. This can be trade with any WTO member or, more specifically, between the UK and a country with whom it has a Free Trade Agreement. For example, if the subsidy is supporting production of a good which is exported between the UK and the EU this could affect trade. Please note that you are not being asked whether the subsidy could harm trade but merely whether there could be some sort of effect. Subsidies to very local companies or a small tourist attraction are unlikely to be caught as this is unlikely to affect international trade.

17. If the measure is considered a subsidy, its treatment may vary depending on whether it is a good or a service. Please consult the technical guidance for more information.

18. Article 3.5 of the Subsidy Control chapter of the TCA makes provision about certain of categories of subsidy that are prohibited. Similarly, the WTO ASCM contains 2 categories of prohibited subsidies, under which subsidies must not be given:

  • subsidies dependent on export performance – for example giving a subsidy to a widget manufacturer linked to exporting a certain tonnage of widgets to another country
  • subsidies contingent on the use of domestic content – for example stating that the beneficiary must use 50% UK manufactured widgets in their product

TCA Financial Assistance Threshold

19. The TCA sets out principles which all subsidies must meet, unless the total amount granted to a single economic actor is below 325,000 Special Drawing Rights (approx. £335,000 at 22 March 2021) over three years[4].

20. The TCA minimum financial assistance (MFA) level of 325,000 Special Drawing Rights replaces the EU de minimis regulation under the Treaty of the Functioning of the European Union, which limited the amount of support provided to a beneficiary to €200,000 (cash grant equivalent) over a three-year period (please see de-minimis calculation below).

21. The only exceptions to the scope of the TCA are subsidies for agriculture and fisheries, subsidies related to trade in fish and fish products and subsidies related to the audio visual sector.

22. The TCA sets out common principles that must be met for subsidies that exceed the 325,000 special drawing rights. The designing and granting of subsidies must consider these principles on a case-by-case basis – including those under the Community Empowerment (Scotland) Act 2015. Failure to do so could leave a public authority open to judicial review in the UK.

23. The principles are (Article 3.4 of the Subsidy Control chapter of the TCA):

1. Subsidies pursue a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns ("the objective")

2. Subsidies should be proportionate and limited to what is necessary to achieve the objective;

3. Subsidies should be designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided

4. Subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy;

5. Subsidies should be an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means;

6. Subsidies' positive contributions to achieving the objective should outweigh any negative effects, in particular the negative effects on trade or investment between the UK and the EU.

COVID Thresholds (Temporary Framework)

24. Certain schemes delivered in response to COVID-19 may be considered a Temporary Framework (TF) subsidy. Such schemes permit an economic actor to receive additional relief of up to a further £1,900,000 for COVID-19 related losses.

25. This may be combined with the MFA limit to permit an economic actor to receive up to approximately £2.2 million.

26. Retail, Hospitality, and Leisure Relief in 2020-21 and 2021-22 does not count towards the MFA or TF limit.

27. The Scottish Government plans to circulate a register of COVID schemes to assist Local Authorities in subsidy control consideration.

TCA Thresholds Calculation

28. Special Drawing Rights (SDR) are on a floating currency basis, and the exchange rate changes regularly. The following links may be of assistance:

29. Any previous de minimis aid allocated under EU State aid should be cumulated with any subsidies given as TCA SDR MFA. Therefore, it is necessary to account for any previous payments made over the three-year fiscal year period (current and previous two fiscal years of the recipient – i.e. the recipient's own financial year for accounting purposes).

30. It may not be necessary for local authorities to convert every offer of grant provided under EU de minimis rules into SDR using the SDR conversion rate that applied at the time those grants were given. To calculate prior EU de minimis funding, local authorities may choose to use the SDR conversion rate available at 1 January 2021, unless it is possible to establish the rate at the time of payment in which case that rate should be used. This will show that previous funding now converted into SDRs had been taken into account.

31. The Scottish Government intends to produce a consolidated list of COVID support, and the extent that each scheme is capped or not for the purposes of determining whether a potential grantee has exceeded the TCA subsidy threshold.

Relief Restriction Regulations

32. The Non-Domestic Rates (Restriction of Relief and Consequential Amendments) (Scotland) Regulations 2020 ("the 2020 Regulations"), which came into force on 1 January 2021, maintained the restrictions provided by the EU state aid de minimis framework as it applied on the day the 2020 Regulations were made. This was undertaken in the absence of clarity in late 2020 with regard to the future national subsidy regime in the UK, and following the ending of the EU Exit transition period on 31 December 2020.

33. The Non-Domestic Rates (Restriction of Relief) (Scotland) Regulations 2021 follow on from and amend the Non-Domestic Rates (Restriction of Relief and Consequential Amendments) (Scotland) Regulations 2020. These may be accessed at:

34. These Regulations introduce a subsidy threshold framework to the awarding of specified non-domestic rates reliefs in order to ensure that reliefs are aligned with the MFA level of 325,000 SDR. The setting of the threshold at this level would not prevent grant of other subsidies where permitted by the TCA.

35. Under the Regulations, from 1 April 2021 the 325,000 SDRs cap applies on the aggregate financial amount that can be awarded in the form of specified non-domestic rates reliefs. In calculating the cap regard must be had to previous relief of the specified types, to relief or assistance that prior to EU Exit would have been considered de minimis State aid and to relief or assistance that is a de minimis "subsidy" under Article 3.2.4 or 3.3.3 of Chapter 3 (subsidy control) of Title XI of Heading One in Part Two of the TCA. Further information can be found in the Policy Note:

National Subsidy Framework

36. The Subsidy Control Bill was introduced in the UK Parliament on 30 June 2021 and is progressing through its Parliamentary stages. The expectation is that it becomes law in autumn 2022.



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