Full cost recovery: calculate your real grant costs

Is your grant budget nearly finished, but you’re still wondering whether you can include management time, finance support and the software everyone needs?

Full cost recovery helps you work out what delivery will really cost, including the work that rarely gets its own budget line. That matters when you’re writing the application alongside your day job and want delivery protected once the money arrives.

What does full cost recovery mean for a grant?

Full cost recovery means calculating all the costs of delivering a project: its direct costs plus a fair share of the organisation’s shared running costs. The National Lottery Community Fund’s definition takes the same approach.

The basic calculation is direct project costs + allocated support costs = full project cost. You then check which costs are eligible, what other funding is available and how much you can request, without assuming the grant will cover everything.

Why this matters before you win the grant

Winning feels good, and the weeks spent answering questions finally feel worthwhile. The hard part comes when delivery starts and the budget you wrote under deadline pressure has to pay for everything the project actually needs.

If the budget omitted finance time, supervision or reporting, someone still has to do that work. Usually, it’s someone whose diary was already full.

Under-costing can turn a welcome award into pressure on the services you already run. A transparent budget also helps senior leaders and trustees see the true financial commitment before they sign off delivery.

The Charity Commission’s reserves guidance helps trustees consider why reserves are held and how they support financial planning. Using unrestricted funds to support a project can be reasonable, but it needs a conscious decision.

A budget that looks cheap can worry an assessor, because it raises the question of how the work will really be paid for. They need confidence that the organisation can deliver what it promises.

You need that confidence too, particularly when the next application is already waiting.

Build direct costs from the delivery plan

Start with activities, responsibilities and dates. A blank spreadsheet is a poor substitute for an agreed workplan.

Salary alone doesn’t give you the employment cost. Include relevant employer National Insurance, pension contributions and other applicable employment costs.

For someone splitting their time between projects, calculate the share attributable to this work. A useful starting formula is:

Annual employment cost × project working-time share × proportion of year funded.

Adjust it for actual start dates, pay changes and the funder’s required method. If you use hourly rates, record how you’ve calculated them, including the treatment of paid leave.

Check recruitment, induction and supervision too. These costs can be easy to miss when the budget starts with delivery sessions rather than the people needed to run them.

Travel, materials and venue hire are obvious. Accessibility, safeguarding support, evaluation and reporting may need more thought.

Use the workplan to identify each activity’s cost drivers, such as staff time, participant numbers or session frequency. Check unit costs for a session or other delivery unit against quantities, rates or current quotes.

NCVO’s project budgeting guidance distinguishes direct costs and support costs. The useful test is whether you can clearly attribute the expenditure to this project.

If evaluation is promised in the application, give it time, responsibility and a budget. Someone has to collect that evidence, and their time needs to be in the budget.

Bring shared costs into the calculation

Core costs can feel awkward when the funder talks enthusiastically about frontline delivery. Yet the project still needs payroll, insurance, management and systems.

Shared costs, or overheads, may include premises, finance, HR, IT, leadership and governance. Calculate the project’s fair share where the scheme permits them.

Review management accounts and annual reports with whoever manages finance. Use them as background, then check how the project will use each cost.

Existing costs aren’t automatically irrelevant. An organisation may already pay for its finance system, but the project still uses that system and the people operating it.

What matters is the share of that cost the project will use, even if the bill was already being paid before you applied.

Some costs can belong in either category, depending on their use.

Dedicated project software may be a direct cost. An organisation-wide subscription may need apportionment. A project manager’s delivery time may be directly attributable, whilst wider leadership time is shared.

Whichever way you treat a cost, keep it consistent across the whole budget.

If you’ve already charged a cost directly, remove it from the shared pool before allocating costs. Otherwise, the same expense can appear twice without anyone noticing until the figures are challenged.

Apportionment means dividing shared costs between projects on a fair basis. The basis you choose should reflect how resources are used, with proportionality and a documented method that matches the cost being allocated.

NCVO’s cost allocation guidance identifies staff time, floor space and expenditure as common allocation bases.

Treat them as useful starting points you can adapt to your organisation.

Shared cost	Possible allocation basis	Evidence to retain
Premises	Floor space and duration of use	Space calculations and delivery timetable
HR support	Relevant staff numbers or staff time	Staffing plan and calculation
Finance support	Staff time or relevant expenditure	Budget and documented method
Shared IT	Users or licences attributable to the project	User list and subscription costs

Choose the method that fits each cost. Applying one percentage across everything is quick, although it rarely reflects how each shared cost is actually used.

The calculation is:

Shared cost pool × project’s proportion of the chosen allocation basis = allocated project cost.

Keep the organisation-wide total, project share and period together in your working sheet. Someone else should be able to repeat the calculation.

A percentage of total project costs differs from the same percentage added to direct costs. Check which denominator the funder uses before applying an overhead cap.

Review your method for allocating shared costs when staffing, premises use or delivery arrangements change. A calculation copied from last year’s application needs checking.

Separate full cost, eligible cost and grant request

These are three different figures. Keeping them separate makes the funding position much clearer.

The full cost is everything required to deliver the project, including its fair share of support costs.

Eligible costs are the costs this scheme allows. The grant request is the amount you’re asking the funder to contribute, after applying funding limits and the rules on other income.

Where a scheme has an intervention rate, it sets the maximum percentage of eligible costs the grant can cover. At a 50% rate, £80,000 of eligible expenditure permits a maximum £40,000 grant. The remaining £40,000 needs permitted funding.

That calculation says nothing about additional ineligible costs. Those still need a funding source, which could include income generation through ticket sales if realistic and permitted.

Show confirmed contributions, pending applications and permitted in-kind support separately. A positive conversation with a potential funder isn’t confirmed income.

If the award leaves a gap, take it to the decision-maker in a business case for approval. Set out the amount, proposed funding source and delivery consequences.

A deliberate subsidy can be a reasonable way to support your organisation’s purpose, as long as the decision-makers have agreed it and know where the money is coming from.

Read the live scheme guidance, the application form and the award conditions side by side. The headline funding page is written to get you interested, and the detail that decides what you can claim is usually further in.

The National Lottery Community Fund’s overheads guidance explains how to calculate relevant overheads. It also excludes costs incurred before the grant, costs already paid by another party and costs unrelated to project outcomes.

Other funders set their own rules, so a cost another funder accepted last year still needs checking against this scheme.

Check VAT treatment against your organisation’s position and the scheme’s conditions. Recoverable VAT is often excluded, while irrecoverable VAT may be eligible, and last year’s treatment might not apply this time.

Capital costs need separate attention. Equipment or refurbishment may require quotes, permissions, procurement, ownership arrangements and maintenance planning.

Check whether the grant funds purchase, use or depreciation. Don’t claim the purchase price and depreciation for the same funded asset.

Finally, you may come across HM Treasury’s Managing Public Money if you work alongside the public sector. It covers how public bodies manage money and set fees and charges, so it won’t tell you what a charity grant will fund.

For what a grant will actually fund, the live rules for your scheme are always the place to start.

Budget across the whole award period

A multi-year application needs more than one year’s figures multiplied by the number of years.

Recruitment may happen first, delivery later and evaluation near the end. Allocate costs to when they’ll arise, including shared costs across relevant financial years.

Check expected pay changes, contract renewals and maintenance. Use documented assumptions for inflation where the funder allows it.

Explain the basis rather than adding an unexplained percentage.

Keep the financial period clear too. A financial year, academic year and project year may cover different dates. The budget, workplan and reporting schedule need to agree.

Even a fully funded project can cause cashflow problems if the money arrives after the bills do.

Check payment dates, whether claims are paid in arrears and what evidence triggers payment. Then compare those dates with payroll, supplier bills and delivery commitments.

If there’s a gap before reimbursement, decide now who covers it.

The Charity Commission’s risk management guidance supports a structured approach to financial and operational risks. As part of your financial management, check whether you can meet commitments whilst waiting for the grant payment.

Avoid common mistakes and check the budget

Most budget errors happen under pressure. People care about the project, the deadline moves closer and the spreadsheet starts receiving optimistic edits.

Adding a standard overhead percentage without checking its basis is a common problem. A permitted flat rate may be valid, but an unsupported percentage needs more work.

Another mistake is treating match funding as money that can cover anything. Restricted funds can only support spending within their restrictions. Confirm that contributions are permitted and available during the project dates.

Volunteer time also needs care. It may be accepted as an in-kind contribution, but that doesn’t make it cash for payroll or rent.

Check that the narrative and budget agree. Promised activities, staff time, venues and evaluation must match. Assessors shouldn’t have to resolve differences themselves.

Finally, don’t rely on staff absorbing additional work indefinitely. Record the time required and decide how it’ll be resourced.

If these problems recur across submissions, Bid Win Rate Accelerator Training can help your team examine the patterns affecting performance. Better habits reduce the pressure on each final draft.

You need a review that tests the calculation, delivery plan and funding rules together.

Give the reviewer the scheme guidance, workplan, budget, assumptions and income confirmations. A spreadsheet on its own leaves too much unseen.

Use these questions for your final check:

• Does each significant cost connect to an activity, responsibility or required support function?
• Can someone repeat the staffing and overhead calculations?
• Have you removed duplicate costs and excluded ineligible expenditure?
• Are other contributions correctly labelled, permitted and available on time?
• Do the totals, dates and commitments agree across every attachment?

Ask finance to confirm the calculations and funding position. Ask delivery leads to confirm that the resources match the commitments.

Then have someone read the application as an assessor would. Check whether the budget supports credible delivery and offers value for money.

At Bidsmithery™, our grant application review tests the developed application against the funder’s questions, guidance and scoring. We look for gaps, unclear assumptions and weak connections between evidence, delivery, outcomes and the business case.

That supports the final check without replacing your organisation’s financial approval. You still own the costs and commitments.

Frequently asked questions

Key takeaways

• Build costs from the delivery plan, including staffing, support and reporting.
• Allocate shared overheads using a fair, documented method.
• Separate full project costs, eligible costs and the grant request.
• Confirm how you’ll fund any shortfall and manage payment timing.
• Review the figures and written commitments together before submission.

A credible budget gives you a clear view of what you’re committing to. It also gives the funder reasons to trust your delivery plan.

If regular deadlines leave too little room for challenge, explore our bid review and retainer support. Book a free fit call to talk through the support that would make the biggest difference.

An external red review gives you an experienced second pair of eyes on the figures and commitments before the funder sees them, and leaves your team more time for the work they’re already doing.