FAQ: budgets and costs in Horizon 2020 projects

Applying for and running projects within the Horizon 2020 project requires some knowledge on budgets, from eligible costs to hourly rates. Are you preparing or executing a Horizon 2020 project and unsure about the budgeting rules? Based on our experience as a project manager partner in Horizon 2020 projects and the issues our clients face, you will find the answers to several frequently asked questions in this overview. Is there any specific question you want answered? Let us know, and we will update this section.

Please take note that the European Commission also has an extensive Horizon 2020 Frequently Asked Questions database available.

What costs are eligible for funding?
An important rule to keep in mind is that the costs you declare must be incurred during the project. Costs that you make before the project starts (e.g. writing the proposal or preparing the grant agreement) cannot be taken into account. The costs also have to be incurred by the beneficiary and have to be identifiable and verifiable in the accounts. The work that you performed should be described in the work packages in the grant agreement. You may not declare costs for work that is not described in your project.

What costs categories are distinguished in H2020?
There are 4 basic categories of costs:

  • A. Personnel costs –  You have to calculate for every person working for the project the costs per person month and multiply this by the months they will work for the project;
  • B. Subcontracting costs – A task that is performed by a third party.
  • D. Other direct costs – This category is divided into: purchase of services, goods and travel;
  • E. Indirect costs – a fixed amount for overhead, calculated as 25% over the personnel and direct costs;

What is a lump sum?
In case of a SME-phase 1 project, you will receive a lump sum, a single amount of money without specification. In this case you don’t have to categorise your costs.

What is a person month?
This metric is used to calculate how much time a person will spend on a project. For example, if one person works for 0.5 FTE on a project, with a duration of 30 months, the number of person months is 15.

How do I calculate the hourly rate per person?
The hourly rate is calculated as ‘annual costs for the person’ divided by the ‘number of annual productive hours’. The annual costs include all costs that the employer makes for that person, including salary and social securities. The annual productive hours are calculated based on your own rules or chose for 1720 fixed hours per year. You can find detailed calculations and examples in the H2020 annotated model grant agreement (H2020 AMGA).

How do I comply with the rules for time recording?
All personnel will have to record the time spent on the project in a time-sheet or in a computer-based time recording system. They must be signed and dated monthly by the both the person working for the project and the supervisor. Information included in time-sheets must match records of annual leave, sick leave, other leaves and work-related travel. Time records should include, as a minimum:

  • the title and number of the action, as specified in the grant agreement (GA);
  • the beneficiary’s full name, as specified in the GA;
  • the full name, date and signature of the person working for the action;
  • the number of hours worked for the action in the period covered by the time record;
  • the supervisor’s full name and signature;
  • a reference to the action tasks or work packages of Annex 1, to which the person has contributed by the reported working hours.

An example can be found here. Failure to keep adequate time-sheets will result in ineligible personnel costs.

What is included in the ‘other direct costs’ category?
These costs may include travel, purchase of services (mind the best value for money rules, described below) equipment, consumables etcetera.
Include also some budget for renting meeting rooms and facilities in the travel costs category. You can charge these costs to the budget of the coordinator, or divide it among the participants. Travel costs will be reimbursed according to your own accounting principles. This means that when you always fly business class, you are allowed to fly business class for this project and declare those costs.
Equipment costs are based on the depreciation costs and time that the equipment is used for the project. For example, if you write off equipment in 5 years, your project duration is 5 years, and you use the equipment only for 20% of the project, you budget 20% of the equipment costs.

What are indirect costs?
You will receive a fixed amount to cover overhead: 25% calculated over the total of the personnel and other direct costs. This includes telephone charges, rent, heating, electricity et cetera. You don’t have to declare or specify these costs.

What is a third party?
The term ‘third party’ within H2020 is used for all parties that are not partner in the project, but execute certain tasks or part of tasks.

What are the different types of third parties?

Linked third party – This party has a legal link with one of the partners in the consortium, for example a sister organisation that will perform one of the tasks of the participant.
Subcontractors – Subcontractors can be hired to perform one or more tasks for a partner, for example an animal experiment
Other direct costs – Service –only a small resource or service is provided that is needed to perform a task by a participant. An example is building a website or an accountant audit to obtain a certificate on the financial statements.
Third party providing in-kind contributions against payment –  a non-financial resource of a third party put at the beneficiaries’ disposal, but against payment. For example, equipment provided to carry out research.
Third party providing in-kind contributions without payment –  no costs incur here.
Financial support to third parties – only used in certain calls, we won’t go into detail here.

An overview of types of third parties from the H2020 AMGA:
Overview of types of third parties in Horizon 2020

How to declare costs from a third part?

Linked third party – A linked third party should declare actual costs through the participant with the legal link. They should declare actual costs, also keep time-sheets and report all other direct costs. They will also receive the 25% indirect costs over the direct costs.
Subcontractors –A subcontractor may charge the commercial price and will invoice the costs with the participant that is subcontracting the work. The participant will declare those costs under category B. costs of subcontracting.  Usually the subcontractor will make profit and therefore you have to comply with the best value for money and no conflict of interest rules.
Other direct costs – Service –The costs of the service will be invoiced by the service provider to the participant. The participant will declare the costs in category D.  other direct costs. Mind to comply with the best value for money and no conflict of interest rules.
Third party providing in-kind contributions against payment –  The participant should declare the costs in this category.
Third party providing in-kind contributions without payment –  The participant should declare the costs in this category.

How to ensure best value for money?
If you plan on hiring a contractor (service or subcontractor) for a specific task in a H2020 project, you have to comply with the best value for money rule. This does not mean that you need to hire the cheapest service provider, but it does mean that you should carefully consider the options based on quality and price. Usually you may demonstrate best value for money by showing 3 quotations with a description on why the one supplier is the best fit for you. Keep this information on file so that in case of an audit, the accountant may ask for these quotations or your argumentation. Be aware that you also have to comply with procurement rules.

When do I receive payments from the EC?
The EC always pays the coordinator, who in turn has the responsibility to transfer the money to the other participants. When the Grant Agreement is signed, the coordinator will receive the pre-financing payment within 30 days. The amount of pre-financing to be received is decided per project, but usually 10%-30%. The EC will place 5% of the total amount in their guarantee fund, which you will receive when closing the project. After approval of each interim report, the EC has 90 days to pay the amount that was declared. 90 days after approval of the final report, the balance is paid.

Can I make a side contract with a partner?
You are allowed to make side contracts with your partners in the consortium. For example, if you agree on additional payment for a task.

When do I use unit costs for personnel?
This category is used for direct personnel costs of SME owners or natural persons that do not receive a salary from the company they work for. They will declare a unit cost multiplied with the hours worked for the project. The amount for a unit is based on the monthly living allowance for experienced researchers in Marie Sklodowska Curie Individual Fellowship projects. You can find more information in the H2020 AMGA page 392.

How to use special unit costs for clinical trials?
Unit costs are mostly used in clinical trials, only under the Societal Challenge 1 calls. When you are preparing your proposal, the unit costs should be sufficiently described. You will find a table for this in the template ‘essential information to be provided for proposals including clinical trials/studies/investigations’. This calculation will be part of the peer review process, and changing the unit costs will not be allowed after your proposal is granted. Unit costs are fixed amounts per study subject enrolled in a given centre and incudes costs for personnel, consumables, medical equipment and service contracts. This should be calculated based on the costs in year N-1 at the specific beneficiary and according to a defined methodology. The unit cost is set for the entire duration of the project. If one partner is choosing to use unit costs, other partners may use the actual incurred costs.

What reimbursement rates are used within H2020 calls?
There are differences in the percentage of the project costs that can be funded by the EC between calls, usually either 70% or 100% of the total amount. This is simplified from what was used in FP7, when there were different reimbursement rates for certain tasks within a project. When the reimbursement rate is less than 100%, you will have to describe and calculate the entire amount that you need to execute the project. Make sure that you present a convincing case that you have or will acquire the funds to ‘match’ the other costs.

What if I need more money than I can receive to execute the project?
The best strategy to cope with this issue depends per project. There are a few options:

  1. Cut your tasks to fit the maximum amount of funding you can apply for;
  2. Find another fund to pay for the extra costs, for example an investor. Submit a formal letter of intent or some other prove that the funding is not a problem;
  3. An in-kind contribution from your institute/organisation.

Can I make shifts in the budget in the project?
You are allowed to shift budgets within the categories and between partners without an official amendment during the project. It is advised to inform the EC when you prepare major shifts in the budget.

What if I generated income in a project?
You have to declare income that is generated in the project. For example, when you sell equipment that was bought for the project or you charge a fee for participants in a congress that you have organised within the project. This will be deduced from your eligible costs.

When do I need a certificate on the financial statements?
When you declared for more than €325.000 of funding in actual costs (excluding indirect costs), you need to submit a certificate on the financial statements in the final reporting phase. This certificate should be prepared by an accountant. You may budget for this in the ‘other direct costs’ category. In general, this will cost around €4.000 to €8.000.

What will happen when my project is audited?
Apart from receiving the certificate on the financial statements, the EC is allowed to contract an external auditor to audit a project. The entire project is checked on compliance with the rules. Also, occasionally the EC itself is audited and this will be done by audits on projects. In case they find inconsistencies, the amount of the grant will be reduced with the amount that was wrongly declared. If an auditor finds consistent issues (e.g. wrong keeping of time-sheets), he/she is allowed to also investigate this within other H2020 projects that you or your partner are participating in.

How do I contact ttopstart?
At ttopstart we can help you with budgeting and your budgeting questions. Contact us via karin@ttopstart.com. Also have a look at our ttopstart academy website, where you can find project management courses including financials in H2020.