Subsidy Control Act 2022: Four top tips for subsidy recipients

Picture the scene. your business has just been awarded public funding for your new, ambitious project. This grant could make that next step possible and take your operation to another level.

While you are probably focusing on how you’re going to spend that money, allow us to interject with a less exciting, but still important, legal consideration. Have you thought about the Subsidy Control Act?

The operative provisions of the Subsidy Control Act 2022 came into force on 4 January 2023. While public authorities have been learning all about it and preparing themselves, it may have flown under the radar of those receiving subsidies. Fortunately, most of the legal burdens fall on the awarding authority, but we still have four top tips for subsidy recipients that you should be aware of.

1. Know your limits

If your business has received public subsidies before, it’s important that you keep a record of what you’ve been given, and what basis it’s been given on. One enterprise can only receive so much of some kinds of subsidies. There could be a rule against multiple subsidies being given to the same recipient under a particular scheme, and there are also statutory limits to consider.

An enterprise cannot receive more than £315,000 of minimal financial assistance (MFA) within a period of three financial years. Section 37(6) of the Act requires recipients of MFA to keep a written record, for at least three years, detailing:

• that it has received a subsidy by way of minimal financial assistance;
• the date on which the subsidy was given; and
• the gross value amount of the assistance.

The granting authority is required by the Act to notify you that they are proposing to give the subsidy as MFA, and you will need to write to them confirming that receiving it will not take you over the £315,000 limit.

A similar rule applies to services of public economic interest assistance (SPEI). In this case, the limit is £725,000 within three financial years. As with MFA, a recipient of SPEI must inform the granter that they are within the limit, and keep a written record of what they have received.

2. Hold your horses

The money has arrived in your bank account. While you’re probably itching to put your new subsidy to good use, it may be wise in some instances to move slowly. Subsidies can be controversial – whether politically, or within the market that you operate in – and the Subsidy Control Act has provided a new mechanism by which interested parties can challenge a subsidy.

If somebody, whether a competitor or a jilted applicant for the subsidy you have received, takes umbrage with your subsidy then they might apply to the Competition Appeal Tribunal for the decision to award your subsidy to be reviewed. In a worst-case scenario, that can ultimately lead to the Tribunal deciding to make a “recovery order” under Section 74 of the Act. A recovery order requires the public authority which awarded the subsidy to reclaim the money from you.

Clearly, this lingering doubt could leave a recipient in all kinds of bother. Fortunately, there is a time limit for when an application can be made. Under Section 71 of the Act, interested parties only have thirty days from the “transparency date” (usually the date that the subsidy is published on the BEIS subsidy database) to request a review of a subsidy decision.

It may be overly careful but, particularly where a subsidy is potentially contentious, recipients might choose to wait until those 30 days have passed before they spend their money.

3. Stick to the point

Section 77(1) of the Act states that:

“A public authority which has given a subsidy has the right to recover from the beneficiary the whole or part of its amount to the extent that the subsidy is used for a purpose other than the purpose for which it was given.”

Subsidies are always given with a purpose in mind. It is vitally important that the recipient is clear on what (exactly) that purpose is, and that they do not use the subsidy for any other purpose. We would always recommend that the purpose is defined in writing in a contractual document between the granter and the recipient.

Particularly in current times of economic strain, it might be tempting to view a subsidy as a general boost on the balance sheet but that is not the case. Recovery of a subsidy which has already been spent can lead to many complications for a recipient. Will you be able to reclaim the money from the third party who has already received it? Have you contractually committed to keep spending the money which has now gone? Is the project for which the subsidy was awarded still viable?

4. Read the small print

Finally, a piece of advice that is not specifically based on the Subsidy Control Act. Subsidies tend to come with an extensive contract between granter and recipient – and can come with all kinds of strings attached.

We regularly review such documents on behalf of granters and recipients of subsidies, and it is important that recipients realise what they are signing up to. Conditions associated with a subsidy do not necessarily only relate to how the subsidy is spent – they can require enterprises to carry out their wider business in a certain way (perhaps relating to employment or accounting practices), and can give the public authority granting the subsidy the commanding say in decisions about the future of the business.

Where the carrot of a grant is dangled recipients are often willing to overlook inconvenient contract clauses, which can become an unfortunate stick further down the line.

If you are receiving a subsidy and would like our advice on your particular situation or contractual terms, we would be more than happy to hear from you.

You can read our full guide to the Subsidy Control Act 2022 for public authorities here.