EU Grant Budget Guide: Cost Categories, Rules & Templates

Budget Fundamentals: What Horizon Europe Actually Funds

Horizon Europe grants reimburse eligible costs that are directly linked to the project. The funding rate varies by action type: Research and Innovation Actions (RIAs) cover 100% of eligible costs, while Innovation Actions (IAs) cover 70% for commercial entities and 100% for non-profit organisations. The EIC Accelerator grant component covers 70% of eligible costs up to EUR 2.5 million.

Eligible costs must satisfy four conditions: they must be incurred during the project period, they must be connected to the project and foreseen in the work plan, they must comply with applicable national and EU legislation, and they must be identifiable and verifiable in the beneficiary's accounting records. Costs that do not meet all four conditions will be rejected during financial audits — and the Commission conducts systematic ex-post audits on a sample of completed projects.

The 2026–2027 Work Programme introduced significant budget simplifications. Approximately 50% of Horizon Europe calls now use lump-sum funding rather than actual-cost reporting. Under the lump-sum model, beneficiaries receive a fixed amount per work package upon delivery of agreed outputs — with no requirement to track individual cost items. This eliminates most of the reporting burden but requires careful upfront budgeting, since you cannot request additional funds if actual costs exceed the lump sum.

Direct Personnel Costs: The Largest Budget Line

Personnel costs typically represent 60–80% of a Horizon Europe budget. The Commission reimburses the actual salary costs (gross pay plus mandatory employer social charges) of employees working on the project, pro-rated by the percentage of time dedicated to project activities.

The standard calculation uses a daily rate: annual personnel cost divided by 215 productive days per year (the EU standard since 2021). If an employee works 50% of their time on the project for 12 months, the eligible cost is: (annual salary + social charges) / 215 × (215 × 0.5) = 50% of the annual cost. Time must be recorded in timesheets — or through an equivalent time-recording system — and be auditable.

For SMEs and startups, the Commission offers two important flexibilities. First, natural persons (sole proprietors or freelancers who are not employees) can charge their time using the same unit cost methodology. Second, SME owners who do not draw a salary can use an SME owner unit cost — currently EUR 5,080 per month for full-time work on the project, adjusted annually by the Commission.

Personnel cost pitfalls to avoid: do not include bonuses or variable compensation unless they are part of the contractual salary; do not include recruitment costs (these are overheads covered by the flat rate); and do not charge time for activities not described in your work plan. If an auditor finds personnel costs that cannot be traced to specific project activities, the entire cost line may be disallowed.

Subcontracting, Equipment, and Other Direct Costs

Subcontracting covers work performed by third parties under a service contract. In Horizon Europe, subcontracting must be explicitly described in the proposal and should only be used for tasks that cannot be performed by the consortium partners themselves. The cost of subcontracting does not generate indirect costs (it is excluded from the flat-rate calculation). Subcontracts must be awarded following best value-for-money principles and, for larger amounts, competitive tendering. The Commission typically expects subcontracting to remain below 30% of the total budget unless specifically justified.

Equipment costs are eligible as depreciation charges for the portion of the equipment's useful life used during the project. If you buy a EUR 100,000 instrument with a 5-year depreciation life and your project runs for 2.5 years with the instrument used 80% for project work, the eligible cost is: EUR 100,000 × (2.5/5) × 0.80 = EUR 40,000. Full purchase cost is only eligible if the equipment is exclusively used for the project and fully depreciated within the project period — which is rare.

Other direct costs include travel and subsistence (for project meetings, conferences, and fieldwork), consumables, access to research infrastructures, publication costs (including open-access fees, which are mandatory under Horizon Europe), and costs of financial guarantees or certificates on financial statements (CFS). A CFS is required from an independent auditor when a beneficiary's total claimed EU contribution exceeds EUR 430,000 — this threshold was confirmed in the 2026–2027 Model Grant Agreement.

All direct costs except subcontracting are subject to the 25% flat rate for indirect costs, which is applied automatically by the Commission's grant management system.

The 25% Flat Rate for Indirect Costs

Horizon Europe uses a single flat rate of 25% for indirect costs (also called overheads). This is calculated automatically as 25% of all eligible direct costs excluding subcontracting. You do not need to justify or document your actual indirect costs — the 25% rate is applied regardless of whether your real overheads are higher or lower.

This simplification was introduced to eliminate the complex overhead calculations required under the previous framework programme (Horizon 2020), where some organisations used actual indirect costs and others used a flat rate, creating inconsistency and audit risk. Under Horizon Europe, every beneficiary — university, research institute, SME, or large company — uses the same 25%.

For startups and SMEs, the 25% flat rate is generally advantageous because actual overheads in small companies are often lower than 25% of direct costs. The flat rate effectively provides extra funding to cover rent, utilities, IT infrastructure, administrative staff, and other overhead expenses without requiring documentation.

For large research organisations with high actual overheads (60–80% is common in universities), the 25% flat rate represents a significant reduction. This is a deliberate policy choice by the Commission — and one reason why many universities now charge more costs as direct costs (with proper justification) to maximise their reimbursement.

Budget calculation example: if your direct personnel costs are EUR 300,000, equipment depreciation is EUR 40,000, travel is EUR 20,000, and subcontracting is EUR 50,000, your indirect costs are: (300,000 + 40,000 + 20,000) × 0.25 = EUR 90,000. The subcontracting (EUR 50,000) is excluded from the flat-rate base. Your total eligible budget is EUR 500,000.

Lump-Sum Funding: The New Default in 2026

Since 2024, the European Commission has progressively moved Horizon Europe towards lump-sum funding. In the 2026–2027 Work Programme, approximately 50% of calls use lump sums instead of actual-cost reimbursement. This is one of the biggest changes in EU grant management — and many applicants are still unprepared for it.

Under lump-sum funding, the consortium agrees on a fixed total budget divided into work packages. Each work package has a defined lump-sum amount, deliverables, and acceptance criteria. When a work package is completed and the deliverables are accepted by the Project Officer, the beneficiaries receive the agreed lump sum — regardless of whether actual costs were higher or lower. There is no cost reporting, no timesheets, no financial audits on individual cost items.

The advantages are significant: dramatically reduced administrative burden, no audit risk on individual costs, and faster payment processing. The risk is that if actual costs exceed the lump sum, the beneficiary absorbs the difference. If costs are lower, the beneficiary keeps the surplus.

Budgeting for lump-sum projects requires a different approach. Instead of building up from individual cost items, you work backwards from outcomes: what deliverables does each work package produce, how many person-months does that require, and what is a realistic total cost? The Commission provides a lump-sum preparation tool on the Funding and Tenders Portal that helps calculate appropriate amounts.

Key rules: lump sums must still be based on reasonable cost estimates. The Commission can reject a budget if amounts are clearly disproportionate. Sub-contracting within lump sums must still follow best value-for-money principles. And beneficiaries must still complete the work — receiving a lump sum without delivering the agreed outputs is a breach of the grant agreement.

EIC Accelerator Budget: Grant, Equity, and Blended Finance

The EIC Accelerator budget works differently from standard Horizon Europe grants. You can request up to EUR 2.5 million in grant funding (at 70% funding rate for innovation activities), up to EUR 10 million in equity investment from the EIC Fund, or a combination of both (blended finance). The 2026 Work Programme raised the minimum equity component from EUR 500,000 to EUR 1 million.

The grant component follows Horizon Europe cost rules: direct costs (personnel, subcontracting, equipment, travel, other) plus 25% flat-rate indirect costs, reimbursed at 70% of eligible costs. This means that for every EUR 100 of eligible costs, you receive EUR 70 from the EIC. You must co-finance the remaining 30% yourself.

The equity component is invested by the EIC Fund at fair market valuation. The Fund typically takes a minority stake (10–25%) and invests alongside the grant — meaning you can receive both non-dilutive grant funding and equity investment in a single package. The equity is managed by the EIC Fund team and follows a separate due diligence process that typically takes 3–6 months after the funding decision.

Budget tips specific to EIC Accelerator: structure your budget around 3–5 work packages that map clearly to development milestones. The grant portion should cover R&D activities (completing development, testing, certification), while the equity portion is positioned as growth capital (market entry, team scaling, commercial operations). Evaluators want to see that the grant and equity serve different but complementary purposes — not that you are using grant money as a substitute for equity.

The total project cost includes the requested grant, investment and your co-financing; it need not equal the funding ceiling of the selected instrument. In fact, demonstrating that you have attracted or are attracting private co-investment is a strong positive signal for evaluators.

Budget Mistakes That Sink Proposals

Budget errors are among the easiest mistakes for evaluators to spot — and among the hardest for applicants to recover from. An inconsistent or unrealistic budget undermines the entire Implementation section of your evaluation.

Mistake 1: Budget does not match the work plan. Every euro must trace back to a specific activity in your Gantt chart. If Work Package 3 describes extensive clinical trials but the budget shows only EUR 20,000 in travel and no subcontracting for a clinical research organisation, the evaluator will question your understanding of what the work actually requires.

Mistake 2: Personnel costs that do not add up. If your CTO is allocated 100% to three different work packages simultaneously, or if your total person-months exceed the number of people in your team multiplied by the project duration, evaluators will notice. Use a person-month allocation table and verify that every team member's total allocation is at most 100%.

Mistake 3: Forgetting co-financing. At the 70% funding rate (EIC Accelerator and Innovation Actions), you must co-finance 30% of eligible costs. If your total budget is EUR 3 million, you need EUR 900,000 in co-financing. Show where this comes from — existing revenue, investor commitments, national co-funding — or evaluators will doubt your ability to execute.

Mistake 4: Requesting a budget that is too small or too large for your objectives. An AI startup claiming they will build and commercialise a foundation model with EUR 500,000 lacks credibility. An equity request without a credible scaling plan and supporting financial projections lacks justification. The budget should be ambitious but defensible.

Mistake 5: Ignoring the financial sustainability test. Evaluators check whether the requested EU funding is proportionate to your company's size and existing resources. A startup with EUR 50,000 in annual revenue requesting EUR 2.5 million in grant funding needs a very compelling explanation of how it will absorb and manage that scale of funding.