If your business has received an Innovate UK grant, you’ll almost certainly need an Innovate UK audit at some point during the project. UK Research and Innovation (UKRI), the parent body behind Innovate UK, requires grant recipients to submit an independent accountant’s report confirming that claimed costs are properly supported. It’s not optional – and getting it wrong can mean repaying funds.
Here’s what the process involves, what costs qualify, and how to prepare.
What is an Innovate UK grant audit?
This is a review of your project spending by an auditor working independently. They check that the costs you’ve claimed match the grant terms, are backed by evidence, and correctly calculated.
Strictly speaking, UKRI calls it an “IAR” (a formal report by an independent specialist) rather than a statutory engagement. But the work is similar: the specialist examines your records, tests a sample of transactions, and issues a report that Innovate UK relies on when deciding whether to release funding. Most people in practice just call it a grant review.
You’ll typically need this report at project end, though larger or longer grants may require interim reports too.
What costs are eligible?
Innovate UK is strict about what counts as eligible expenditure. The main categories are:
- Labour costs. Salaries and wages for staff working directly on the project. You’ll need timesheets showing hours spent, and the labour cost calculation must follow the correct day rate formula – typically annual salary divided by 220 productive days. Employer’s NI and pension contributions count. PAYE records need to support every claim.
- Overheads. Usually claimed as a percentage of staff costs (20% is common for academic partners, though rates vary by scheme). The overhead rate is set in your grant agreement.
- Materials and consumables. Items bought specifically for the project. Capital equipment usually isn’t covered unless depreciation is claimed over the project period.
- Subcontractor and specialist costs. Work outsourced to third parties at arm’s length, with proper procurement records.
- Travel and subsistence. Project-related travel at reasonable rates. First-class travel and entertainment won’t pass.
VAT is only claimable if your organisation can’t recover it. Most VAT-registered businesses must exclude VAT from their grant claim entirely.
The audit process
A typical Innovate UK review follows a clear pattern. The accountant will ask for your project costs spreadsheet, general ledger extracts, and supporting documents for a sample of transactions. For labour, that means employment contracts, payslips, timesheets, and the day rate workings. For other costs, it means invoices, purchase orders, and proof of payment.
They then check each sampled item against the eligibility criteria in your grant agreement. Common issues include:
- Timesheets that aren’t signed or don’t match the hours claimed
- Day rate calculations using the wrong denominator
- Indirect cost percentages that don’t match the agreement
- Missing invoices for subcontractor work
- Costs claimed before the official start date or after the end date
Once the review is complete, the specialist issues the report. If there are problems, you’ll usually get a chance to provide additional evidence or adjust the claim before it goes to UKRI.
How to prepare
Good preparation makes the process faster and cheaper. Start keeping clean records from day one – don’t leave it until someone asks.
Set up separate cost codes in your accounting system so you can pull Innovate UK spending quickly. Keep timesheets up to date monthly, not retrospectively at project end. Build a file that maps every claimed item to its supporting evidence so the accountant can trace any line back to a document within minutes.
If staff split time across multiple projects, make sure the allocation method is documented and consistent. UKRI reviewers are particularly careful about labour cost apportionment because it’s the area most prone to error.
Choosing the right specialist
Not every accountant has experience with Innovate UK grants. You need someone who understands UKRI’s rules, the format of the report, and what the funder expects.
At Audit Group, we handle Innovate UK work regularly from our Manchester office. We know what UKRI looks for, and we help your team resolve issues before the final submission. If you need support with a funding review – or any other public grant engagement – call us on 0161 832 4451 or visit our contact page.
Read more about our grant audit services or our wider statutory work.
