Budgeting for Chest overhead recovery income

In general, trust funds established after 1995 will pay an overhead of 20% (or 30% for most funds established after 2007) of the gross pay costs charged to the fund.  This is normally indicated by the inclusion of the phrase “and associated indirect costs” within the regulations.  Pay costs are those using transaction codes in the range AAAA-DZZZ.  Any applicable overhead charge should be built into relevant budget calculations.

The overhead rate when applied to professorial salary is calculated on the gross cost of spine point 68 irrespective of the actual spine point of the professor.

Indirect Cost Charge (ICC) overheads

In general ICC overheads are charged on salary costs paid from donations accounts, special funds, external trading accounts and research Chest overhead accounts. This overhead, charged at 30% of salary costs only (UFS transaction codes A - D), is to cover the infrastructure cost of the individuals employed. By infrastructure costs we mean a share of the cost of the building in which an individual works, the cost of equipment that they use and the costs of employment such as payroll and health and safety.

Where an institution considers that a particular item of expenditure should constitute an exception to this policy, they should raise the issue with their Finance Business Partner or Institution head of finance. Please note that we should not routinely exempt services provided to charities or other educational establishments from ICC on the grounds they are not for profit. These costs are real and do not constitute a ‘profit’. By not charging these overheads we are using our limited Chest income to subsidise other organisations, and we reduce the financial sustainability of academic activities.

Research grant overheads

Research grant sponsors may allow overhead or indirect cost recovery to be included when costing the budget for a research project. This is in recognition of the costs incurred in the institution and centrally because of the research activity being carried out. As an incentive for Institutions to apply for grant funding, a share of the cost recovered is credited to institutions’ accounts. Consequently, some institutions may have access to substantial sums that can be used to finance capital projects or to fund staff long- or short-term. 

Costing grants

Grants costed from September 2005 must be costed on a full economic cost (fEC) basis using the X5 tool. The full economic costing methodology allocates non-direct costs to a project based on research staff FTE (excluding support staff). There are separate cost allocation rates for:

• Estate costs, both lab and office-based
• Infrastructure technicians
• Other indirect costs

These rates are set by the University and updated annually (University of Cambridge fEC Rates | Academic and Financial Planning and Analysis). In addition, the cost of the time of the Principal Investigator (PI) and co-investigators may also be charged to the grant. 

Few sponsors pay the full economic cost of a project, e.g. Research Councils pay 80% and Charities often pay direct costs only, so a discount is calculated which equals the unfunded amount. 

In some instances, e.g. where large equipment purchases or studentships form part of the grant costing calculation, sponsors will pay differing proportions of the full economic cost of a project. Calculation of the expected non direct cost recovery is therefore not straightforward.

If the amount the sponsor is prepared to pay is insufficient to cover 100% direct costs, the institution will have to make up the shortfall and the Head of Institution will need to decide whether the grant application should go ahead. 

Income received from Research Grants and Contracts that is surplus to direct costs on the project is split between the Chest and Institution in line with the University's Income Allocation Policy (IAP). Again, non-direct cost recovery is split between the Chest and institutions.

Fellowship grants do attract non-direct costs for Research Council sponsors.

The institution share of non-direct cost recovery is posted to sources of funds EDAA or EZZZ, and EZZY for Pooled Labour.

Much charity funding is eligible for the Charity Research Support Fund so the University receives additional Quality Research (QR) funding based on the volume of eligible charity funding. A proportion of this income (currently 6%) will be credited to source of funds ECBA and is available to be used by institutions, without restriction, in the same way as funds from overhead and non-direct cost recovery are utilised. If these funds are employed to support staff costs, there will be an indirect cost charge to consider.