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Which costs can a company claim on an Innovate UK project?

Source last checked: 7 September 2026. Quoted from Innovate UK costs guidance for non-academic organisations, published at ukri.org and last updated 28 August 2026.

The seven categories, and what "eligible" means

If you are a non-academic organisation claiming funds from Innovate UK, the project finances section of the application is where every cost lands, and it is organised into numbered categories: labour, overheads, materials, capital usage, subcontract, travel and subsistence, and a seventh for direct project costs the first six do not cover. Costs guidance for non-academic organisations, Innovate UK costs guidance

The word doing the work across all of them is directly. Costs qualify where they are incurred for the project rather than absorbed into business as usual, and claims must be for actual costs incurred and paid, supported by documentation. That last phrase is not decoration: labour claims need timesheets, project records or both, authorised by the project manager, and capital and overhead claims need the calculation behind the number. 1. Labour costs, Innovate UK costs guidance

One thing to settle before the numbers: your organisation size. Innovate UK asks you to follow the company accounts guidance on GOV.UK, and for organisations within a group the combined information of the whole group is used. That is a change from the EU definition, unless state aid applies to you, in which case the EU definition for company size is the one to use. Costs guidance for non-academic organisations, Innovate UK costs guidance

Labour: what a day rate may contain

This category is for employed staff working directly on the project, on your payroll and subject to PAYE. You may include direct staff such as engineers, scientists and project managers, and also indirect back-office staff identified as directly supporting project activities, such as budgeting, project reporting and recruiting. 1. Labour costs, Innovate UK costs guidance

The day rate is derived, not asserted. Innovate UK calculates it from the number of working days per year less bank holidays and your organisation’s annual leave entitlement, together with the length of time your organisation is on the project — which is not necessarily the length of the whole project, since your involvement may only cover a defined period. 1. Labour costs, Innovate UK costs guidance

What may sit inside that figure is not left to interpretation. The guidance states it directly:

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.

Innovate UK, Costs guidance for non-academic organisations, section 1. Labour costs

The load-bearing word there is non-discretionary, and it is what later rules out the bonus. Around it sit the mechanical rules: part-time staff are entered as full-time equivalent, you state the number of staff at each grade, and where you cannot name individuals at the point of application an average grade based on the band or job family is accepted. The finance form then applies the calculated day rate to the number of days your staff are allocated to the project. 1. Labour costs, Innovate UK costs guidance

Three things are excluded by name: blended labour rates that already include overheads, discretionary bonuses or performance-related payments of any kind, and time not spent working directly on the project — sick leave, non-productive time, training days and maternity pay. 1. Labour costs, Innovate UK costs guidance

If you do not operate a PAYE scheme

Micro companies, sole traders and partnerships that do not run a company PAYE scheme are not shut out. If you work directly on the project you can include your labour as an eligible cost, subject to three conditions: the labour must be calculated using a maximum of eight hours per day at £22 per hour, up to 40 hours per week; the costs must be recorded through the business accounts; and your project time must be supported by timesheets and project records. Any claim for grant awarded must comply with these criteria. Micro companies, sole traders and partnerships not operating a PAYE scheme, Innovate UK costs guidance

Overheads: three routes, and what each one costs you

Innovate UK accepts that organisations calculate overheads differently, so it offers a choice rather than a formula. The choice has consequences for how fast your application is processed and for how much evidence you carry.

The calculate route runs through a spreadsheet you download from the overheads costs section of the application form, with a section for direct overheads and a section for indirect overheads; the total overheads spreadsheet adds them up. Whichever route you take, overhead elements should be restricted to those that directly impact and support the project but cannot be identified as a direct cost. 2. Overheads, Innovate UK costs guidance

Indirect overhead: the additionality test

Indirect overheads are the costs of back-office functions — finance, human resources, administration staff — whose primary function is to support the running of the business, and which are typically not tied to a particular product or service. They are eligible only if they are incurred directly because of undertaking the project, and only if they are additional: over and above your business-as-usual costs. Where you have already put specific indirect individuals into labour costs, they belong there together with the overhead attributed to them, not here as well. Indirect (administration) overhead, Innovate UK costs guidance

The template splits them into named categories. Staff costs across board and senior management engaged in strategic or administrative tasks, main administrative staff such as receptionists and central administration, human resources staff, employed cleaning, maintenance, security and estates staff, and main finance department staff such as payroll and accounts payable and receivable — each based on PAYE gross salary, employer’s National Insurance, company pension contribution and life insurance. The exclusions are the interesting part: not people working directly on the project, not customer-facing or operational staff, and not administrative staff employed to support sales, marketing, account management or profit-generating departments. Indirect (administration) overhead, Innovate UK costs guidance

Beyond staff, the categories cover fees for temporary administration or support staff, general IT services used across the whole organisation, postage and courier for general administration, office stationery and supplies, site and staff safety and security including signage, general repair and maintenance of administration facilities, office rental, contracted services such as office cleaning, property taxes and charges on office space, and utilities for administration facilities. Each carries the same shape of exclusion: nothing relating to manufacturing, production or fee-earning activity, no product delivery or promotional postage, no deposits or penalties on leases, and no exceptional items such as new works or extensions. Indirect (administration) overhead, Innovate UK costs guidance

The arithmetic starts from your latest set of audited accounts — or, if you are a new company or the information is unavailable, internal management accounts or forecast data. You state what proportion of each cost you assess as additional and directly attributable to the project, the template calculates the project share, and the resulting percentage is applied to the remaining cost categories to save you repeating the exercise. Administration costs that are ineligible here but relate directly to the project, for example on invoices, should be claimed as direct costs elsewhere on the finance form. Column A, Column C and Column E, Innovate UK costs guidance

Direct overhead, and the full-recovery trap

Direct overheads are the costs associated with the staff already listed in the labour table: provision of laptops that are not capital items, and office costs such as occupancy, facilities and utilities. This section is free format, so you list the items yourself. Direct overhead, Innovate UK costs guidance

Two constraints decide whether it survives review. The costs must be directly attributable to the project and must not represent a full recovery methodology that sweeps in redundant or spare capacity time and cost. And you must show the working: a description of each item together with the methodology or basis of apportionment, including the calculations that support the claimable costs. If your costs have been through an independent audit verification, Innovate UK may ask for that report to support its financial eligibility review. Direct overhead, Innovate UK costs guidance

One routing note that catches people: costs associated with laboratories or workshops do not belong in direct overhead. They go in the other costs section of the application form. Direct overhead, Innovate UK costs guidance

Materials, and the software rule

Materials used directly on the project are eligible where they are purchased from third parties. If a material has a residual or resale value at the end of the project, the cost must be reduced accordingly. Materials supplied by associated companies, or subcontracted from other consortium members, must be listed at cost with any profit element or margin stripped out. 3. Materials costs, Innovate UK costs guidance

Software divides on when you bought it. Software bought specifically for use during the project goes in this category outright. Software you or a consortium partner already own is different: you may claim only the additional costs incurred and paid between the start and end of your project, such as preparation of disks, manuals, installation, training or customisation. Costs should be split into their component parts and allocated to the appropriate category rather than entered as one line. 3. Materials costs, Innovate UK costs guidance

Capital usage, with Innovate UK’s own worked example

You can claim the usage costs of capital assets, not their purchase price, and only where the asset has a useful life of at least one year, is stand-alone, clearly definable and moveable, and conforms to your organisation’s capitalisation policy as set out in your published accounts. 4. Capital usage, Innovate UK costs guidance

The calculation is fixed. Original purchase price excluding VAT, divided by the depreciation period in months from your current capitalisation policy, gives the monthly depreciation charge. The project capital usage cost is that monthly charge multiplied by the number of project months, multiplied by the percentage of time the item is used on the project. 4. Capital usage, Innovate UK costs guidance

Innovate UK works it through with an item bought for £305,000 and depreciated over four years, used on a project for 15 months at 15% utilisation. £305,000 divided by 48 months is £6,354 a month. That, multiplied by 15 project months and then by 15% utilisation, gives £14,296 as the cost to the project. Case study, Innovate UK costs guidance

Subcontract: three tests, then the partner question

Subcontract costs cover work carried out by third-party organisations that are not part of your project team, and the work has to pass three tests: it must be essential to the success of the project, involve expertise that does not exist within the project team, and involve skills that it is not practical to develop in-house for the project. You name the subcontractor where known, describe what they will do and where the work will be undertaken, and justify the role fully in the application. Where a subcontractor is based outside the UK, you must justify why a UK alternative was not used. 5. Subcontract costs, Innovate UK costs guidance

A partner company can be a subcontractor, but only in exceptional circumstances and only with a full explanation of why that route was chosen over claiming the costs inside that partner’s own application. Services from partner companies exclude any profit element and are charged at cost, and the company receiving project funding must stay within subsidy control limits. 5. Subcontract costs, Innovate UK costs guidance

Innovate UK defines the relationship rather than leaving it to judgement. An organisation counts as a partner or associated company if the entities are not entirely separate legal entities, for example sitting within the same corporate group; if they share ownership or control, including shared parent companies, group structures or cross-shareholdings; if they have overlapping directors, management teams or governance bodies; if one party can direct, influence or materially affect the other’s decisions, operations or strategic direction; or if the relationship reflects activity within the same corporate group rather than an independent collaboration. 5. Subcontract costs, Innovate UK costs guidance

Two consequences worth writing down. Independent auditor or accounting reports, required under Innovate UK terms and conditions for project assurance and compliance, are an ineligible cost and cannot be claimed under any cost category. And any change to the original subcontractor table during a live project must be raised with your monitoring service provider as a formal project change request. 5. Subcontract costs, Innovate UK costs guidance

Travel and subsistence

You can claim reasonable travel and subsistence costs, but only for individuals identified in the labour tab, and only where the cost is necessary and incurred exclusively for the progression of the project. Travel must be economy, best-value-for-money travel only; Innovate UK points to HMRC guidance and the HMRC employment income manual for the detail. 6. Travel and subsistence costs, Innovate UK costs guidance

You give the details and the purpose of the expenditure, including how many staff were involved and the mode of transport, and you separate the types of travel onto separate lines. Two examples Innovate UK gives are electric vehicles, at 7p per mile for home charging and 15p per mile for public charging, and hotel accommodation with breakfast included in the price. 6. Travel and subsistence costs, Innovate UK costs guidance

The seventh category: everything else

Other costs takes direct project costs the previous categories do not cover. Workshop and laboratory costs live here where they can be identified specifically as directly attributable to the project; you explain how the hourly or daily rate is calculated, which can include specific labour such as staff permanently in place to maintain and run the facility rather than project-specific staff, set against available operational hours. Each workshop or laboratory must be supported with actual usage data to claim costs. Workshop or laboratory usage costs, Innovate UK costs guidance

Intellectual property has its own ring fence. Only SMEs may claim a contribution towards filing costs of new IP generated by the project, to a maximum of £7,500 per SME partner, and that allocation cannot be reallocated to other cost categories to cover overspend elsewhere. If the full £7,500, or any unused part of it, is not required for IP registration and related activities, it must remain as an underspend at the close of the project. Legal costs relating to the filing of trademark-related expenditure do not qualify: they count as marketing or exploitation costs. Contribution to IP registration and associated costs, and Regulatory compliance, Innovate UK costs guidance

The rest of the category is narrower than it looks. Technical reports may be eligible where they are specific to and necessary for the project, for example where the main aim of the project is support of standards or technology transfer — but you must show how the report is above and beyond what good project management would produce. Management training specific to the project may be considered; ongoing training will not be. Market assessment studies get some support where you demonstrate they are essential to meet the scope of the competition, while any direct sales activity cost is ineligible. And where imported technology valued at more than £100,000 makes up a large part of the project, Innovate UK expects that technology to be developed as part of the project. Regulatory compliance costs are eligible where they can be justified and shown to be necessary to deliver the project. Preparation of technical reports, Licensing in new technologies and Regulatory compliance, Innovate UK costs guidance

VAT, and the list nothing will take

Innovate UK grants are not payment for a service; they are given without expectation of any return, which places grant funding entirely outside the scope of VAT. Costs claimed must therefore be net of VAT. Organisations not registered for VAT can include the VAT they incur within their costs, and academic participants and industry partners can legitimately claim irrecoverable VAT incurred as part of their costs. VAT, Innovate UK costs guidance

Collected in one place, the costs the guidance rules out are: blended labour rates inclusive of overheads; discretionary bonuses and performance-related payments; time not worked directly on the project, including sick leave, non-productive time, training days and maternity pay; independent auditor or accounting reports and accounting services, under any category; legal costs for filing trademark-related expenditure; direct sales activity; and ongoing training as opposed to project-specific training. 1. Labour costs, 5. Subcontract costs, Preparation of technical reports and Regulatory compliance, Innovate UK costs guidance

Questions we are asked about Innovate UK costs

What can I put in a labour day rate on an Innovate UK project?

Gross employee costs calculated from your PAYE records: gross salary, employer’s National Insurance, company pension contribution, life insurance and other non-discretionary package costs. The day rate itself is derived from the number of working days per year less bank holidays and your organisation’s annual leave entitlement. Blended labour rates that already include overheads are not accepted, and neither are discretionary bonuses or performance-related payments of any kind.

I do not run a PAYE scheme. Can I claim my own time?

Yes, if you are a micro company, sole trader or partnership not operating a company PAYE scheme and you work directly on the project. Innovate UK caps it: a maximum of eight hours per day at £22 per hour, up to 40 hours per week. The costs must be recorded through the business accounts and your project time must be supported by timesheets and project records.

Should I take the 20% overhead option or calculate my overheads?

The 20% option lets you claim 20% of your labour costs as overhead, covering both direct and indirect overhead, and needs no further documentation from you. The calculate option asks you to complete direct and indirect overhead templates, and any value claimed that way is reviewed by the Funding Assurance Pre-Award team if your application succeeds. Once a calculated overhead is approved it cannot be exceeded at any point in the project life. There is also a no-overheads option.

How is capital usage calculated?

Original purchase price excluding VAT, divided by the depreciation period in months from your capitalisation policy, gives a monthly depreciation charge. Multiply that by the number of project months, then by the percentage of time the item is used on the project. Innovate UK’s own example: an item bought for £305,000 and depreciated over four years is £305,000 divided by 48 months, or £6,354 a month; used on the project for 15 months at 15% utilisation, the claimable cost is £14,296.

Can a project partner also be a subcontractor?

Only exceptionally, and you must give a full explanation of why that was chosen over claiming the costs inside that partner’s own application. Subcontract services supplied by partner companies must exclude any profit element and be charged at cost, and the company receiving the funding must stay within subsidy control limits. Innovate UK treats an organisation as a partner or associated company where the entities are not entirely separate legal entities, share ownership or control, have overlapping directors or governance bodies, or where one can direct or materially affect the other’s decisions.

Which costs will no category accept?

Independent auditor or accounting reports and accounting services are ineligible and cannot be claimed under any cost category, even though the reports themselves are required for project assurance. Legal costs for filing trademark-related expenditure are treated as marketing or exploitation costs and are ineligible. Direct sales activity costs are ineligible. Ongoing training is not supported, though training specific to your project may be. Blended labour rates, discretionary bonuses and time not spent working directly on the project are all out of the labour category.

This page quotes the costs guidance Innovate UK publishes for non-academic organisations. Section names are given as they appear on ukri.org. Where the guidance points to a template, a spreadsheet or to HMRC rules, the figure lives in that document and not here. This page quotes the guidance and does not give financial or legal advice.