Thousands of second home owners will not be able to take advantage of an  “unethical loophole” allowing them to access taxpayer-funded grants during the lockdown, the Welsh Government has confirmed.

Fears were raised by several local authorities earlier this week that a “gap” in the £1.1bn financial support package for small business would allow holiday home owners to apply for £10,000 grants, designed to mitigate the impact of the Covid-19 lockdown on the local economy.

Critics including Gwynedd Council’s leader, Dyfrig Siencyn, had warned that such a loophole could result in millions of pounds  “lining the pockets” of second home owners, with the Welsh Government package aimed at firms employing fewer than nine people.

During a session of Wales Questions at Westminster on Wednesday, Liz Saville Roberts MP also pushed the Secretary of State for further clarification, with further lobbying over recent weeks from Anglesey, Conwy, Ceredigion and Pembrokeshire councils.

“We are pleased that the minister has listened to us and changed the business guidelines available to support small rural businesses in Gwynedd and other counties across Wales,” said Cllr Siencyn.

He had warned that “unethically” allowing second home owners to claim from the purse aimed towards small rural businesses would have cost the public purse between £15m and £20m in Gwynedd alone.

“I would like to confirm to Gwynedd small businesses, whether they are a farm that has converted an outbuilding to a holiday let or a family that has converted a former family home into a holiday accommodation business; that we will look favourably at supporting you.

“These types of businesses that offer valuable provision within the county are the ones we should be supporting during these challenging times.”

Gwynedd contains around 5,000 second homes, with the authority estimating that between 1,500 and 1,800 of them have already registered themselves as businesses and pay business rates rather than domestic council tax, thus avoiding a recently introduced 50% premium.

Cllr Siencyn added: “Whilst we did not agree with the exact wording of the changes to the guidelines, we’re confident that the changes will mean that no second home owner will be able to claim this grant money without presenting evidence that the majority of their income derives from the property.

“As a council we are pleased that the minister has listened to the arguments that we presented to her and that the public purse will not now be used to enrich those who are already using the Welsh Government’s rules to avoid paying taxes on their second homes.”

The government’s new guidance states that three specific clauses need to be adhered to:

Self-catering accommodation produce two years of trading accounts to 31 March 2019

Self-catering accommodation must let the property for 140 days or more in the financial year 2019-20

Self-catering accommodation business must be the primary source of income for the owner (minimum threshold is 50%).

Arfon AM, Sian Gwenllian, congratulated the local authorities for their efforts, adding that ensuring public funds are used to support bona fide holiday let businesses is vital to  the rural economy.

A Welsh Government spokesperson said: “We have refined some of the eligibility criteria for business support grants to ensure that businesses who are most in need of a grant, are supported.

“Reaching this stage has taken a lot of work and co-operation and we thank local authorities across Wales for their contributions.”