Guidance on managing project costs, maintaining financial records and reporting eligible expenditure under an actual costs funding model.
Actual costs funded projects report on all eligible costs incurred during the project. Cost statements must be submitted at relevant points during the project and once the project is complete it may be subject to a financial audit.
Standard Budget Categories
In the proposal and in each financial report, costs must be broken down into the following categories:
- Personnel costs – including daily rate for SME owners and natural persons (as beneficiaries) without a salary
- Subcontracting
- Purchase costs – e.g. travel, equipment, other goods and services
- Indirect costs (overheads)
General Eligibility Criteria
For costs to be eligible, they must:
- be actually incurred by the beneficiary (no estimates),
- be incurred during the project duration – exception: costs for the final report within 60 days after project end,
- be budgeted (see Annex 2 GA),
- be necessary for the project implementation and covered by the project description (see Annex 1 GA),
- be identifiable, verifiable and recorded in the beneficiary’s accounts in line with (inter-)national accounting standards and its usual cost accounting practices,
- comply with applicable national laws on taxes, labour and social security, and
- be reasonable, justified and comply with the principle of sound financial management.
Non-eligible Costs
The most common are as follows:
- interest owed
- currency exchange losses
- bank charges for transfers from the EU Commission
- deductible VAT Note: non-deductible VAT is eligible
Special Forms of Costs
Besides actual costs, the GA may allow the following forms:
Unit cost – based on pre-defined units; evidence for project link, necessity and used during the project duration
Indirect costs – flat rate of 25% of eligible direct costs (excluding certain cost categories, e.g. subcontracting); no evidence required
Lump sums – pre-agreed fixed reimbursement for costs
Principles and Evidence
The maximum grant amount set out in the GA cannot be exceeded.
If a beneficiary’s requested EU contribution (including the 25% flat rate for indirect costs) is EUR 430,000 or more, a Certificate on the Financial Statements (CFS) must be submitted with the final report.
For-profit beneficiaries must declare any project-generated revenues – generally, Horizon Europe applies a non-profit principle. Revenues may reduce the EU contribution.
Reporting
In Horizon Europe projects, reporting takes place regularly at the end of each reporting period and finally after the end of the project. Each report consists of a technical part and a financial part (“Financial Statement”). The entire process is handled electronically via the European Commission’s Funding & Tenders Opportunities Portal.
Financial report
Financial reporting includes:
- the Financial Statements of all beneficiaries and, where applicable, their affiliated entities
- the corresponding Explanation on the Use of Resources (i.e. explanations on the use of resources) or, if necessary, a detailed cost breakdown table
- where required, a Certificate on the Financial Statements (CFS)
The Financial Statement must include all eligible costs incurred during the respective reporting period, reported completely and accurately – regardless of whether the requested EU contribution is lower than these costs.
Each beneficiary (and, where applicable, each affiliated entity) prepares its own Financial Statement, which is then electronically signed by the Financial Signatory (FSIGN) and submitted to the coordinator. The coordinator submits the complete report to the European Commission within 60 days after the end of the reporting period. If a beneficiary misses this deadline, the Financial Statement can generally only be submitted in the next reporting period.
Errors in already submitted Financial Statements must be corrected via so-called adjustments.
- Adjustments can be made directly in the portal from the second reporting period onwards (“add adjustment”).
- Only the difference compared to the originally reported amount is entered.
- Corrections must be assigned to the correct reporting period (i.e. one adjustment per reporting period).
Note: Adjustments may only be used to correct errors (e.g. omitted or incorrectly reported costs) – not to retroactively change calculation methods (e.g. for personnel costs).
Other important aspects
Foreign currencies: Costs incurred in foreign currencies must be converted into euro according to the organisation’s usual accounting practices.
Final report: In addition to costs, revenues must also be declared. Where required, a CFS must be submitted.
Submission and assessment: Reports are assessed as a whole package and are either accepted or rejected in full. In case of rejection, the report must be revised and resubmitted. This may delay payments. The European Commission generally has 90 days to make the corresponding payment (interim or final) after submission of an accepted report.
Further information:
EU Grants: Annotated Grant Agreement (AGA), Article 21 (PDF)
The Commission also has a useful explanation of grant management on their online manuel.