Eligible and Ineligible Costs

A grant does not cover everything an organisation has spent on a project, only the eligible costs. The eligibility rules are written into the grant agreement, and the financial report is checked against them. Below is the logic of EU grants under Article 6 of the model grant agreement, which most donors apply in a similar form.

General conditions for actual costs

Article 6.1 requires costs to be, all at once:

• actually incurred by the beneficiary, not estimated and not borne by someone else;
• incurred during the action duration (the exception being the preparation of the final report);
• declared under one of the budget categories of the agreement;
• connected to the action as described in the agreement and necessary for its implementation;
• identifiable and verifiable: recorded in the accounts under the accounting standards of the beneficiary's country and its usual practices;
• compliant with national law on taxes, labour and social security;
• reasonable and economical.

Cost categories

The Horizon Europe model grant agreement has five: A – personnel, B – subcontracting, C – purchases (travel and subsistence, equipment, other goods, works and services), D – other categories where the call provides for them, E – indirect costs. Indirect costs are not supported by documents: they are a flat 25% of eligible direct costs, the base for which excludes, among other things, subcontracting and financial support to third parties. Under the default option, equipment is declared as depreciation for the time and share of use in the action, not at full cost. Tasks to be subcontracted must be named in the description of the action. Personnel costs are supported by time records, which is why timesheets are kept. More detail is in the article on Horizon Europe budget rules.

What is ineligible

Article 6.3 expressly lists as ineligible:

• return on capital and dividends, debt and debt service charges, provisions for future losses, interest owed;
• currency exchange losses and fees charged by the beneficiary's bank for transfers from the granting authority;
• excessive or reckless expenditure;
• deductible or refundable VAT. In Horizon Europe non-recoverable VAT is eligible, but in some EU programmes VAT is always ineligible;
• costs incurred during suspension of the agreement;
• costs already declared under another EU grant (double funding).

The AGA adds that entertainment and gifts are generally ineligible, as are the costs of preparing the proposal before the action starts.

Lump sum and other donors

In lump sum grants actual costs are not checked: payment depends on the work being carried out as described in the agreement. Evidence that it was done is still required.

Ukrainian state funds and other donors follow the same logic with their own details: the list of permitted budget lines, the indirect cost rate, procurement requirements and the treatment of VAT are set by the call conditions and the contract. Where a grant comes from a state budget, the rules on the use of budget funds apply on top. EU rules cannot be carried over to another grant automatically.

Typical reasons for rejecting costs

• The date of the source document falls outside the project period.
• Timesheets are missing or do not match attendance and leave records.
• A purchase made without comparing prices or from a related party.
• Subcontracting that was not in the description of the action.
• The same cost declared under two grants.
• Documents were not kept: the requirements are described in the article on record keeping.