Overhead costs, which are also called general costs or indirect costs, have, as a general rule, to be allocated to the project using a pro rata basis. The pro rata basis must follow generally recognised accounting standards.

You can use a flat rate of up to 25%, where average real costs attributable to operations of the same type are used as a basis for calculations. Please bear in mind that you must prove to the 1st level controller that the calculations from the operation of the same type can actually be used for your project. The calculations should be well documented and reviewed periodically and changed if necessary. Only actual incurred overhead costs which can be documented can be claimed.

The documentation for overhead costs must be either external invoices or calculations linked in a direct and transparent way to external invoices or similar evidence, which must always be kept on file. A practical approach to this calculation could be the following: At beneficiary level identify the actual incurred overhead costs. Next, a pro rata basis must be identified in order to allocate the overhead costs in an equitable manner. The pro rata basis for an office building could be for example the m2 and/or hours spent on the project. Once the pro rata basis is in place, a proportion of the total actual incurred overhead costs can be claimed for each beneficiary.

To illustrate the principle, say a project beneficiary wants to include costs for rent, heating etc. as overhead costs related to the project. The office consists of 200 m2 and 10 people work in the office. 2 employees work full time on the project.

The total overhead costs for the period in question are Euro 50.000

The costs which can be included as overhead costs in this example are:

Overhead costs per m2: 50.000/200= 250.

Pro rata basis:

2/10=0.2 or

Unit cost per m2 x number of m2

Overhead costs which can be included in this example:

= 0.2 x 50.000= 10.000 Euro or

= 40 m2 at Euro 250 per m2 = 10.000 Euro.

You are recommended to consult your controller for further advice on this issue.