Your project does not run on delivery time alone. Someone pays the rent, processes the payroll, keeps the records and makes sure the work is managed safely. Full cost recovery makes those costs visible—and gives you a defensible way to explain the project's true price.
For UK charities, the difficult question is often not whether an overhead exists. It is how much of it belongs to this project, what evidence supports that share and what happens if a funder will not pay it. This guide tackles those decisions with an illustrative calculation, practical allocation methods and wording you can adapt.
If you need the structure of a complete application budget, start with our guide to writing a grant budget. Here, the focus is narrower: allocating shared costs fairly and explaining the difference between the full project cost and the grant you are asking for.
What is full cost recovery for charities?
Full cost recovery means securing funding for the direct costs of a project and a proportionate share of the organisation's support costs. Direct costs belong specifically to the project. Shared costs, also called overheads or support costs, help that project and other work happen.
The National Lottery Community Fund's full cost recovery guidance gives project-worker salaries and volunteer expenses as examples of direct costs, with shared administration, rent, utilities, legal and audit fees among possible overheads. Its guidance allows applicants to request a proportionate share of overheads; always check the particular programme's current rules.
There is an important distinction. Full cost budgeting identifies the whole cost. Full cost recovery means you actually secure income to cover it. A well-prepared spreadsheet does not mean that every cost is eligible or that the funding has been won.
A funder's limit changes what you can request. It does not change what the project really costs.
1. Separate direct costs from shared support costs
Start with the work, not an overhead percentage. Define the delivery period, staffing, premises and support the project will actually use. Then ask of each cost: does this belong wholly to the project, or does it support several activities?
- Direct: a sessional tutor employed only for this programme, project materials, participant travel or a room hired solely for its sessions.
- Shared: a finance officer processing several projects' payments, general office rent, shared IT or organisation-wide management.
- Split: a manager may spend identifiable hours delivering the project and other time supporting the whole organisation. Record those roles separately, without charging the same hours twice.
Classification depends on your circumstances. A dedicated project administrator may be a direct cost; a central administrator serving several teams is usually shared. The National Lottery Community Fund also explains that, where a project is the organisation's only work, its costs need not be separated into overheads in the same way. Do not force a complicated allocation model onto a genuinely single-project organisation.
2. Choose an allocation basis that reflects use
For each shared cost pool, choose a reasonable measure of how much of that resource the project uses. NCVO's guidance on cost allocation and apportionment identifies people, floor space and expenditure as common methods. The right choice is the one you can explain as fair and reasonable—not the one that produces the largest request.
Use a method you can evidence
- People or staff time: project full-time-equivalent staff divided by the staff supported by that cost pool. Useful where support needs broadly follow team size.
- Space and time: the project's share of usable space, adjusted for how long it occupies it. Useful for premises costs where projects use different areas or session times.
- Recorded support time: finance or management hours reasonably attributable to the project. Keep a practical record or documented estimate and review it.
You do not need a different formula for every bill. A small organisation may reasonably use one simple method when it reflects resource use. However, a staff-based split may be unsuitable if one project occupies most of the building and another operates remotely.
Keep the numerator and denominator comparable. A six-month project should not be charged against twelve months of overheads without an appropriate time adjustment. Include other projects and relevant activities in the denominator; do not divide shared costs only between the projects whose funders accept overheads.
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3. Worked example: calculate a fair share of overheads
Illustrative example—not a funder-approved rate
These figures are invented solely to demonstrate the arithmetic, not drawn from a real charity. They assume a twelve-month project within a charity running several activities. Every shared cost pool covers the same twelve months and excludes costs already charged directly. Funder eligibility rules, caps and required methods vary.
Suppose a community mentoring project has £48,000 of direct costs: £36,000 for project staff including employer costs, £6,000 for dedicated venue hire, £4,000 for participant travel and materials, and £2,000 for project-specific evaluation. The £6,000 venue hire is separate from the shared office costs below.
Its two full-time-equivalent staff are part of a supported team of ten: 2 ÷ 10 = 20%. It uses 25% of the shared office space throughout the year. A documented support-time plan assigns it 10% of a separate management and governance cost pool.
| Shared cost pool | Annual cost | Project share | Allocated cost |
|---|---|---|---|
| Finance, administration and shared IT | £24,000 | 20% (2 of 10 FTE) | £4,800 |
| Shared office rent and utilities | £12,000 | 25% of space, full year | £3,000 |
| Separate management and governance support | £10,000 | 10% of support time | £1,000 |
| Total allocated support costs | £8,800 | ||
The full project cost is therefore £48,000 + £8,800 = £56,800. The £8,800 is part of delivering the work responsibly, not an extra amount added because the application has space for it. The remaining £37,200 of the £46,000 shared-cost pools belongs to other activities; the charity must still plan how to fund it.
Watch the denominator when using percentages
Here, support costs are 18.33% of direct costs (£8,800 ÷ £48,000), but 15.49% of total project costs (£8,800 ÷ £56,800), rounded to two decimal places. These describe the same budget using different bases. If a funder specifies a percentage cap, check exactly what it is a percentage of before applying it. Neither figure is a recommended overhead rate.
4. Explain the allocation without apologising for it
Avoid a single unexplained line labelled “admin 20%”. State what the support enables, the size of the relevant cost pool, the basis of allocation and the amount attributed to this project. Keep the calculation available even if the form asks for only a summary.
Illustrative wording to adapt
“The project's full twelve-month cost is £56,800, comprising £48,000 of direct delivery costs and £8,800 of shared support costs. Finance, administration and shared IT are allocated using the project's two of ten supported full-time-equivalent staff (£4,800). Shared office costs reflect its 25% use of space (£3,000). Management and governance support reflects a documented 10% share of that separate cost pool (£1,000). No item is also included as a direct cost. These services enable financial control, coordination and accountable delivery.”
That wording explains a calculation; it is not evidence by itself. Back it with staff plans, accounts or management budgets, premises information and the support-time assumptions. Use the same delivery scope in your budget and case for support. Do not promise a level of oversight that the budget cannot support.
5. Make any funding gap an explicit decision
Not every funder pays every support cost. NCVO's full cost recovery guidance warns that funders and contractors may exclude or cap support costs. It also explains that a charity may deliberately use unrestricted income or reserves to support a project that is not fully funded. That should be a conscious decision, not an accidental subsidy.
In our example, suppose an award covers the £48,000 direct costs but only £4,800 of support costs. Total funding is £52,800, leaving £4,000 unfunded. Do not remove that £4,000 from the internal cost model to make the application balance. Identify a permitted source, negotiate the scope, seek complementary funding or decide that the current offer is not viable.
Distinguish confirmed contributions from applications still awaiting a decision. If reserves might cover the gap, check the charity's reserves policy and get the appropriate approval. Restricted money from another award is not a general-purpose top-up: follow its terms and never claim the same cost twice.
6. Keep a cost-allocation record you can review
A short, clear record is more useful than a complicated spreadsheet nobody can explain. For each cost pool, record:
- What the pool includes, its budget period and the source of its total.
- What is excluded because it is already charged directly or belongs to a different pool.
- The allocation basis, the project’s share and the evidence for both.
- The resulting amount, the funder’s eligibility rules and any funding gap.
- Who approved the assumptions and when they will be reviewed.
Across all activities, shares of each pool should reconcile to 100%; they should not exceed the underlying cost. Keep this organisational picture separate from the amount each grant will contribute. Several apparently balanced project budgets can still leave shared costs unfunded.
Review actual costs and resource use during delivery, particularly if staffing, premises or project scope changes. Follow the award terms before moving budget lines or changing what is claimed, and retain the original agreed calculation for your grant reporting. Allocation is not permission to charge whatever the final accounts show.
Full cost recovery: common questions
Is there a standard overhead percentage for UK charities?
There is no single percentage that follows from the full-cost-recovery principle. Calculate a fair share of your actual planned support costs, then check the funder's method and limits. A percentage from another charity is not evidence of your project's resource use.
Is full cost recovery the same as core funding?
No. Full cost recovery concerns the complete cost of a particular project, including its support share. Core funding supports the organisation's ongoing work; whether it is restricted or flexible depends on the award. Our core funding guide explains how to make that broader case.
Does recovering full costs build reserves?
Not automatically. Covering the costs of delivery does not itself generate additional unrestricted income for future needs. NCVO explicitly distinguishes full cost recovery from guaranteed financial sustainability. Your funding strategy still needs to address resilience, cash flow and future investment.
Can we rename overheads as delivery costs if a funder excludes them?
No. Describe costs accurately and apply the funder's definitions. Where a cost genuinely relates directly to the project, explain that relationship. Where it is shared or ineligible, show the allocation honestly and ask the funder for clarification rather than disguising it.
Your next step: test one project, not every spreadsheet
Choose one live or proposed project. List its direct costs, identify the shared resources it uses and calculate a justified share of each support pool. Then compare the full cost with confirmed funding. If there is a gap, give it an owner and a decision date before committing to delivery.
These are practical planning principles, not individual accounting advice. Use your finance lead or adviser where the allocation is complex, and check the current programme guidance before applying. The aim is a cost model your team can defend—not a percentage chosen to make a form look tidy.
