Costs guidance for non-academic organisations - Innovate UK

If you are a non-academic organisation claiming funds from Innovate UK you must complete your projects finances section and include all your eligible project costs.

This page gives you guidance on what information you must provide and what are eligible costs.

The finances section asks you to submit information about your:

  • project costs
  • project location
  • organisation
  • funding

In certifying your organisation status please pay particular attention to organisation ownership. Make sure you follow the company accounts guidance on GOV.UK when establishing your organisation size. For organisations within a group, the combined information of the whole group should be used for making your assessment. This is a change from the EU definition unless you are applying under state aid.

If state aid applies to your organisation, you will follow the EU definition for company size on the European Commission website.

Your project costs

In this section you must list your eligible costs for each category.

1. Labour costs

This section asks for details of employed staff working directly on the project. All listed staff should be on your payroll and subject to PAYE. If you are a micro company, sole trader or partnership not running PAYE, go to the ‘Micro companies, sole traders and partnerships not operating a PAYE scheme’ section.

Note: you may be required to supply employee information in the event of a formal or assurance review on costs being claimed for individuals.

We need to establish the day rate for the role or roles of each person working on the project. This is calculated by the number of working days per year less bank holidays and your organisation’s annual leave entitlement.

We also need to understand the length of time your organisation will be working on the project. This is not necessarily the length of the total project, as your organisation’s involvement may only be for a defined period of time.

You can include direct staff in this tab (such as engineers, scientists and project managers) as well as any indirect, back-office staff who are identified to be directly supporting the project activities (such as budgeting, project reporting and recruiting).

The gross employee costs should be calculated based on your PAYE records. They should include gross salary, employer’s National Insurance (NI), company pension contribution, life insurance and other non-discretionary package costs.

Ineligible labour costs include:

  • use of blended labour rates inclusive of overheads
  • discretionary bonuses or performance related payments of any kind
  • time spent not working directly on the project (for example sick, non-productive time or training days and maternity pay)
  • overtime or time off in lieu
  • dividend payments
  • forecasted pay increases
  • apprenticeship levy

If an employee is part-time you should enter their costs as full-time equivalent. You should enter the number of staff at each grade. If you are unable to specify personnel at the point you apply, we will accept an average grade based on the band or job family.

The finance form will calculate the day rate that will be applied to the number of days your staff are allocated to the project, based on the information you have added.

Claims must be for actual costs incurred and paid.

All claims will need supporting documentation for the individuals allocated to and working on the project. When making grant claims against labour costs, actual costs claimed must be supported with either timesheets, project records or both, for those individuals who have worked on the project. These must be authorised by the project manager.

Micro companies, sole traders and partnerships not operating a PAYE scheme

If you do not currently operate a company PAYE scheme and are working directly on the project, you can include your labour as an eligible cost. This should be in line with the Innovate UK rules and is subject to the following conditions:

  • your labour costs must be calculated using a maximum of eight hours per day (at £22 per hour), up to 40 hours per week
  • your costs must be recorded through the business accounts
  • your project time must be supported by timesheets and project records

Any claims for grant awarded must comply with these criteria.

2. Overheads

We understand that organisations calculate overheads in different ways.

You can select from three options for overhead costs:

  1. No overheads: you can select this option if you are not incurring or claiming grant for your overheads.
  2. The 20% of labour costs option: this option allows you to claim 20% of your labour costs as overhead. This includes both direct and indirect overhead. Selecting this option allows the reviewers to process a successful grant application much faster, as no further documentation is needed from you.
  3. The calculate overheads option: this option asks you to complete calculations for claiming direct and indirect overheads. Any value claimed under this method will need to be reviewed by our Funding Assurance Pre-Award team if your application is successful. This is so we can assess whether the overhead value you are claiming is appropriate.

Overhead elements included within this cost should be restricted to those that will directly impact and support the project but cannot be identified as a direct cost.

Once the overhead is calculated and approved by Innovate UK, it cannot be exceeded at any time throughout the project life.

For the calculate overheads option, you must download and complete the overhead calculation spreadsheet from the overheads costs section of the application form.

The spreadsheet has two sections to complete:

  • indirect (administration) overheads
  • direct overheads (for those listed in the labour costs table)

Once each section is completed, the ‘total overheads spreadsheet’ will calculate your total amount.

Indirect (administration) overhead

Selecting the indirect (administration) overheads link will take you to a template you’ll need to complete to calculate these costs.

We class indirect overheads as those costs associated with back-office functions (such as finance, human resources, administration staff) whose primary function is to support the running of a business enterprise. Typically, these costs are not directly related to a particular product or service production.

Indirect overhead costs are eligible for inclusion if they are incurred directly because of undertaking the project. They must be additional, which means over and above your ‘business as usual’ costs.

Where you have already identified specific ‘indirect’ individuals working directly on the project, these should have been captured in the labour costs together with the overhead attributed to them.

We have provided cost categories in the template. The following list provides our definition for each category.

Board and senior management

The proportion of salary costs based upon PAYE (gross salary, employer’s NI, company pension contribution, life insurance) of the board and senior management of the company. This should be where they are engaged in strategic or administrative tasks. Do not include those working directly on the project or who are customer-facing or operational.

Administrative staff

The salary costs based upon PAYE (gross salary, employer’s NI, company pension contribution, life insurance) of main administrative staff, such as receptionists and central administration. Do not include administrative staff employed to support sales, marketing, account management and profit-generating departments.

Human resources staff

The salary costs based upon PAYE (gross salary, employer’s NI, company pension contribution, life insurance) of human resource staff.

Employed estates staff

The salary costs based upon PAYE (gross salary, employer’s NI, company pension contribution, life insurance) of employed cleaning, maintenance, security and other estates staff.

Finance department staff

The salary costs based upon PAYE (gross salary, employer’s NI, company pension contribution, life insurance) of main finance department staff, such as payroll, accounts payable and receivable. Do not include staff employed to support sales, marketing or account management activities.

Administrative support temporary or agency staff costs

This should include fees paid for the provision of temporary staff in administration or support services as listed above. Do not include any staff that are operational, such as marketing, sales, engineering, quality assurance, research and development and supply chain.

General office IT services

This includes general IT services used across the whole organisation. Do not include IT costs where they relate purely to non-eligible staff or manufacturing, production or fee earning activities.

General postage

This includes postage and courier expenses for general administration needs. Do not include product delivery or any postage costs incurred through promotion, sales, marketing customer relationship or accounts management.

Office supplies, printing and stationery costs

General office stationery and supplies such as paper, business cards, corporate stationery, office equipment for support or admin staff listed above. Do not include specific costs associated with sales, marketing, product delivery, product literature or reports.

Security and safety costs

This includes costs associated with site and staff safety and security, including signage and health and safety costs.

Building maintenance (administration office facilities only)

This includes general repair and maintenance costs of administration facilities. Do not include repair and maintenance of manufacturing or production facilities and exceptional items such as new works or extensions, which are not eligible for inclusion in this section.

Building rental (administration office facilities only)

Where office space is leased, include the rental costs. Do not include rental costs relating to manufacturing or production facilities, or the cost of any deposits or penalties.

Contracted site services (administration office facilities only)

Costs of contracted services relating to administration facilities such as cleaning of offices. Do not include contracted service costs related to manufacturing or production facilities.

Site property taxes (administration offices facilities only)

Property taxes and charges relating to office space. Do not include manufacturing or production facility property taxes and charges.

Utilities (administration office facilities only)

Electricity, gas, water, waste disposal, telecoms costs relating to administration office facilities.

The following is a step by step guide to help you fill in the relevant details to make your costs claim for indirect overhead.

Column A

Starting with your latest set of audited accounts, please input your details against the relevant cost category in column A. If you are a new company or this information is unavailable, please use internal management accounts or forecast data.

Note that for the administration support staff costs section, the costs included here must be based upon PAYE (gross salary, NI, company pension contribution, life insurance). They should exclude discretionary package costs such as bonuses, awards, profit-related pay and dividends. In addition, please exclude any members working directly on the project who are customer-facing or those engaged in operational or production areas.

Column B

In this column you should detail the proportion of the costs outlined in column A that day rate criteria outlined in the cost categories. You can use a percentage.

Column C

In column C please state what percentage of these costs you would assess as being additional and directly attributable administration activity to the project you are undertaking. By additional we mean over and above business as usual.

Column D

Based upon the details you’ve given in the previous columns, column D will automatically calculate the costs you’ve stated as being attributable to this project.

Column E

In column E you will need to provide some description of the cost constituent parts.

Once you have filled in this data you will see a percentage calculation (column F). This calculates what you consider as being eligible indirect overhead costs for your project (D) as a proportion of the annual audited figures (A). To save you time we use this calculated percentage and apply it to the remainder cost categories you have completed.

Any administration costs that are ineligible in this section, but which directly relate to the project (for example based on invoices), should be claimed as direct costs within other sections of the finance form.

Completion of the indirect overheads template will calculate an annual total which will be proportioned for the length of time you are working on the project. You will see a per annum, per month and a per project cost. The per project costs will form your total indirect overheads as a monetary value.

Once you have filled out your indirect overhead information, choose the ‘return to the overheads section’ to take you back to the main overheads section. Here you will see a summary of your indirect overhead.

Direct overhead

Selecting the direct overheads link will take you to a template you’ll need to complete to calculate these costs.

We understand that in undertaking a project you may incur associated costs with those staff working directly on the project and listed in the labour costs table. We refer to these as direct overheads.

Typical costs in this area could include:

  • direct staff provision of laptops (non-capital only)
  • desks
  • office (such as occupancy, facilities and utilities)
  • IT infrastructure and systems

This section is provided in free format for you to list out such costs.

Direct overhead costs must be directly attributable to the project you are undertaking and should not represent a full recovery methodology inclusive of redundant, spare capacity time or cost.

You should detail the costs and include a description of each item together with the methodology or the basis of how the costs have been apportioned. This should include the calculations that support the claimable costs. This will help us to validate these costs if your project is successful.

If your costs have been subject to an independent audit verification, we may ask you to provide this report to support our financial eligibility reviews.

Please note that costs associated with laboratories or workshops should be included within the ‘other costs’ section of the application form.

Once you have completed the direct overhead, you should select ‘return to the overhead section’. You will return to the main overhead tab where you will see a summary of your overhead claim for both direct and indirect overheads.

3. Materials costs

The costs of materials to be used directly on your project are eligible costs if they are purchased from third parties. If the material has a residual or resale value at the end of your project, costs should be reduced accordingly.

If you are using materials supplied by associated companies or subcontracted from other consortium members, these must be listed at cost excluding any profit element or margin.

Software that you have bought specifically for use during your project should be included in this tab. If you or a consortium partner already own software that will be used in the project, you may only claim the additional costs incurred and paid between the start and end of your project.

Examples of costs that may be eligible are those related to the preparation of disks, manuals, installation, training or customisation. Costs should be split between their component parts and allocated to the appropriate cost category.

4. Capital usage

You can claim the usage costs of capital assets providing they meet the following criteria:

  • they have a useful life of at least one year
  • they are stand-alone, clearly definable and moveable
  • they conform to your organisation’s capitalisation policy, as per your organisation’s published accounts

Please calculate the usage value for all equipment and tools bought for use on your project with the following calculation:

  • original purchase price (excluding VAT) divided by depreciation period in months (as per your current capitalisation policy) equals monthly depreciation charge
  • project capital usage cost equals (monthly depreciation charge multiplied by number of project months) multiplied by percentage of time used on project

Case study

An enterprise has a capital item with an original purchase price of £305,000. Their accounting policy states the cost would be depreciated over four years. This item is to be used on the project for 15 months for 15% of the time only.

The calculation for the direct project-related costs of this item would be: £305,000 divided by 48 months equals £6,354. Therefore, the cost to the project should be £6,354 multiplied by 15 project months. Applying 15% utilisation would equal £14,296.

5. Subcontract costs

You can claim costs relating to work carried out by third-party organisations that are not part of your project team. The work must:

  • be essential to the success of your project
  • involve expertise that does not exist within the project team
  • involve skills that it is not practical to develop in-house for your project

You should name the subcontractor (where known) and describe what the subcontractor will be doing and where the work will be undertaken. Their role and engagement will need to be fully justified within your application.

Any work supplied by associated companies should be charged at cost. Where subcontractors are non-UK based, please justify why you are unable to use a UK alternative.

There may be exceptional circumstances where a partner can also be a subcontractor within a project. In these circumstances a full explanation must be given as to why this option has been chosen over claiming the costs within the relevant partner organisation’s own application.

Subcontract services supplied by partner companies should exclude any profit element and be charged at cost. Where a partner is also a subcontractor within a project, it is important that a company in receipt of the project funding stays within subsidy control limits.

This does not include independent auditor or accounting reports (IARs) which are required as part of Innovate UK terms and conditions for project assurance and compliance. IARs and accounting services are an ineligible cost, and therefore are unable to be claimed under any cost category.

Any change to the original subcontractor table occurring during live projects must be raised with your monitoring service provider as a formal project change request.

6. Travel and subsistence costs

You can claim reasonable travel and subsistence costs for those individuals identified in the labour tab. Costs must be necessary and incurred exclusively for the progression of your project. Travel costs must be at economy, best value for money, travel only.

See the HMRC guidance and the HMRC employment income manual for more information.

You should provide details and the purpose for the expenditure, including the number of staff involved and mode of transport.

Separate the types of travel on separate lines, for example:

  • car mileage (at 45p per mile)
  • flight ticket
  • taxi
  • hotel accommodation (with breakfast included in price)

Ineligible costs include:

  • purchase of fuel
  • first-class travel
  • entertainment or marketing
  • visas
  • unreasonable food costs (overnight stay)

7. Other costs

This category can be used for any direct project costs which are not covered in the previous cost categories. See examples of other costs below.

Workshop or laboratory usage costs

Costs relating to workshops or laboratories that can be identified specifically as directly attributable to the project can be claimed in this section.

You should provide details of how the workshop or laboratory cost rates are calculated per hour or day. This can include:

  • specific labour (such as staff permanently in place to maintain and run the workshop or laboratory and not considered project-specific)
  • rent
  • rates
  • maintenance
  • equipment calibration costs

These should form the overall costs together with the available operational hours to form the hourly and daily cost rates. Each workshop or laboratory will need to be supported with actual usage data to claim costs.

Training costs

These costs are eligible where they are specific to and necessary for your project. We may consider support for management training specific to your project, but will not support ongoing training.

Preparation of technical reports

Project costs related to technical reports may be eligible, for example, where the main aim of your project is the support of standards or technology transfer. You should show how this report is above and beyond what good project management would produce.

As mentioned in the ‘Subcontract costs’ section, IARs and associated accounting costs are ineligible.

Market assessment

Some support of market assessment studies is eligible to help understand how your project results are applicable to the intended market. You must demonstrate that these costs are essential to meet the scope of the competition. Any direct sales activity costs are ineligible.

Licensing in new technologies

We may consider support where we deem it makes sense to do so, for example, to avoid ‘reinventing the wheel’. If imported technology makes up a large part of your project (which is technology valued at more than £100,000), we expect the development of that technology as part of your project.

Patent filing costs for new intellectual property (IP)

Only small and medium enterprises (SMEs) are eligible to claim a contribution towards filing costs of new IP generated by the project, to a maximum of £7,500 per SME partner.

These must not include legal costs relating to the filing of trademark-related expenditure, as these are considered to be marketing or exploitation costs and therefore ineligible.

Regulatory compliance

Regulatory compliance costs are eligible where they can be justified and shown to be necessary to deliver your project.

VAT

Innovate UK’s grants are not a payment for a service, they are provided without expectation of any return to Innovate UK. Grant funding lies entirely outside the scope of VAT, any costs claimed must be net of VAT.

Organisations that are not registered for VAT can include VAT incurred within their costs.

Academic participants and industry partners can legitimately claim irrecoverable VAT incurred as part of their costs.

Last updated: 7 December 2023

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