UKRO has received several queries from subscribers who ask if it is possible to apply the 25% flat rate for indirect costs when claiming the costs of internally invoiced goods and services on Horizon Europe projects.
What are internally invoiced goods and services in Horizon Europe?
This budget category covers the cost of goods and services that are produced or provided within two units (e.g. faculties or departments) of the same beneficiary organisation to be used directly on a Horizon Europe project. This includes self-produced consumables, the use of specific research devices or research facilities, as well as specialised premises for hosting the research specimens used for the project (e.g. animal houses, greenhouses, etc.)
It is possible to charge the costs of such internally invoiced goods and services (only as unit costs) to Horizon grants under certain conditions, which are explained in detail on p.98-100 of the Annotated Grant Agreement.
Issue in question
In Horizon Europe, the general rule is that the 25% flat rate for indirect costs cannot be applied on top of the unit cost for internal invoices as was the case in Horizon 2020. Instead, under Article 6.2.D.2 of the Horizon Europe Model Grant Agreement the beneficiaries are allowed to include actual indirect costs – based on their usual cost accounting practices – within the internal invoices.
We have received several queries from subscribers asking if claiming the 25% flat rate for indirect costs instead of the actual indirect costs is allowed in this very specific cost category if the beneficiary simply makes this approach its standard accounting practice (i.e. the institutional policy clearly states that the beneficiary automatically applies the 25% flat rate for indirect costs when creating a unit cost for internally invoiced goods and services). This would align how the beneficiary claims indirect costs for internal invoicing with the other cost categories of Horizon Europe projects (e.g. personnel or purchase costs) where, in principle, the 25% flat rate for indirect costs is applied automatically on all eligible direct costs.
Clarification
The Commission has confirmed that the 25% flat rate for indirect costs cannot be applied to the unit cost for internal invoices. Instead, the beneficiaries are allowed to include actual indirect costs within their internal invoices as long as these indirect costs are based on their usual cost accounting practices and are attributed either by direct measurement or based on certain allocation keys.
In other words, when compared to Horizon 2020, in Horizon Europe there is a wider reliance on the beneficiary’s usual cost accounting practices for the unit cost calculation, which may be problematic for organisations that do not have a well-established methodology for claiming actual indirect costs.
If it is not possible for the beneficiary to meet the above-mentioned conditions for calculating actual indirect costs when claiming the (unit) costs for internally invoiced goods and services, this element of the unit cost cannot be charged to the grant.
Please note that as stated on p.99 of the Annotated Grant Agreement the beneficiary does not need to have an internal document listing all the internally invoiced costs. What matters to the auditors is that the beneficiary can provide evidence of a well-documented methodology for calculating such costs:
“It is not necessary to have a document called ‘internal invoice’ to support these costs, but the beneficiary should have a documented methodology how to determine them (such a methodology must be part of its usual costs accounting practices). The beneficiary must also keep supporting evidence of the use of the good or service for the action and showing the number of units used.”
How to include actual indirect costs for internally invoiced goods and services in Horizon Europe projects?
The Commission requires the beneficiary to have a well-documented methodology for using allocation keys based on the organisation’s usual cost accounting practices. For example, the beneficiary can charge the actual power supply costs allocated to a specific laboratory or room based on the square meters it occupies, instead of simply claiming the standard 25% flat rate, which may not cover all overheads. Organisations that do not yet have a methodology for calculating actual indirect costs may wish to establish one.
Consequently, because the actual indirect costs are expected to be included in the unit cost for internally invoiced goods or services, they will not attract the 25% flat rate for indirect costs in the proposal’s budget table.