Horizon Europe for SMEs: 70% or 100%, the 25% indirect costs and SME status, explained

I am a Verified Expert Evaluator and a venture builder, and I have reviewed more than 3,700 companies and proposals. The budget rules of Horizon Europe are where small companies lose the most time, so this piece goes through them in the order you meet them. I rely on four official documents: the Annotated Model Grant Agreement (AGA, version 2.0 of 1 April 2025), the General Annexes of the Horizon Europe Work Programme 2026-2027, the Funding and Tenders Portal Online Manual (version 1.3 of 1 May 2026) and the Rules for Legal Entity Validation and Financial Capacity Assessment (version 5.0). Where a point comes from them I say so. Where it is my own judgment, I say that too. The specific call and topic conditions can always depart from the general rules, so read them before you fix a budget.

Who pays what: 100% for RIA, 70% for IA

The funding rate depends on the type of action, not on the size of your company. The General Annexes give these maximum rates:

The difference between the two main types is in what the work is. A RIA aims primarily to establish new knowledge or to explore the feasibility of a new or improved technology, product, process or service, including testing and validation of a small-scale prototype in a lab or simulated environment. An IA aims directly to produce plans, arrangements or designs for new or improved products, processes or services, and can include prototyping, testing, demonstrating, piloting, large-scale product validation and market replication. The topic text says which one applies.

So the answer to "are SMEs fully funded in a RIA?" is yes, 100% of eligible costs. The answer to "is an SME funded at 70% in an IA?" is also yes, but a large company gets the same 70% there. In the General Annexes I found no SME-specific funding rate. Three things to keep in mind:

• These are maximum rates. The General Annexes add that other rates may be set in the call or topic conditions.
• Rates are assessed per beneficiary. A beneficiary at 70% can have an affiliated entity at 100%, and each is funded at its own rate (AGA, Article 5.3).
• The grant cannot produce a profit. If revenues plus the grant exceed costs, the surplus is deducted from the final grant.

The EIC Accelerator grant also covers up to 70% of eligible costs; see EIC Accelerator vs Horizon Europe.

The 25% flat rate for indirect costs, with a worked example

Horizon Europe reimburses indirect costs (overheads) as a flat rate of 25% of the eligible direct costs, with an important exclusion: the base does not include subcontracting, financial support to third parties, or unit costs and lump sums that already include indirect costs. For Horizon Europe the AGA also exempts the specific cost categories, except ERC additional costs. You do not have to calculate your real overheads or keep documents for them. You do have to keep records showing that the direct costs the flat rate sits on are eligible.

The question I get most often is whether the 25% is calculated before or after the 70%. The order is: eligible direct costs, then the flat rate on the allowed base, then the funding rate on the total. The 30% is never taken off the budget before the 25% is applied. Here is an example I built to show the mechanics (the figures are mine, the method is the AGA's). An SME in an Innovation Action declares:

Three readings. First, the 25% is applied on EUR 340,000, not on EUR 400,000: the subcontracting contributes to the grant but earns no overhead. Second, the 30% you fund yourself includes 30% of the indirect costs (EUR 25,500 of the EUR 85,000). Third, the maths is the same whether you apply the 25% and then the 70%, or the 70% and then the 25%, as long as the base is right: 70% of 85,000 is 59,500, which is also 25% of 70% of 340,000. The mistake to avoid is a wrong base.

A consequence for planning, and this is my judgment: moving EUR 60,000 from subcontracting to your own personnel would raise the base to EUR 400,000, indirect costs to EUR 100,000, total eligible costs to EUR 500,000 and the IA grant to EUR 350,000, which is EUR 10,500 more. I would not choose between subcontracting and hiring on that basis, but you should know the budget responds to it. The AGA has its own example with the same logic, based on a public university with EUR 130,000 of direct costs, of which EUR 20,000 is subcontracting: indirect costs are EUR 27,500.

Personnel costs and SME owners without a salary

Employees are costed as personnel costs, and the AGA requires the days declared to be identifiable and verifiable. A special rule exists for a situation common in small companies: the founder or owner who does not draw a salary.

• Who qualifies. Direct owners or co-owners of an SME beneficiary, whatever their percentage, who are not employees of it. The rule also covers owners paid through a service contract or profit distribution, and beneficiaries who are natural persons. Owners held through another company do not count as "direct".
• Who does not. An owner who receives a salary registered in the accounts, unless that salary covers exclusively the management of the company and is not linked to the action.
• How it is calculated. As a unit cost: a daily rate multiplied by the days worked on the action. For calls opening from 30 July 2024 the daily rate is EUR 8,745.4 divided by 18, which is EUR 485.86, multiplied by a country-specific correction coefficient (the one used for Marie Sklodowska-Curie actions in force at the time of the call). With a coefficient of 1.00 purely for arithmetic, 60 days would be EUR 29,151.60.
• What you must show. A record of the days the owner worked on the action.
• Ceiling. The horizontal limit of 215 days per person per year applies across all EU grants, and for owners it applies even if you worked on a single EU grant that year.

Lump sum or actual costs: what changes for an SME

Most Horizon Europe actions are actual-cost grants. The General Annexes say lump sum funding is used only where the specific call or topic conditions provide for it. With a lump sum the funding rate is already built into the amount and does not appear in the grant agreement.

• At proposal stage you describe the budget in a detailed budget table. It is the basis for fixing the lump sum, and its costs must meet the same eligibility conditions as actual-cost grants, in particular best value for money and no conflicts of interest for purchases and subcontracting. If the table contains ineligible costs, the grant may be reduced, even later during the project or after it ends.
• During the project the lump sum is eligible if the work was carried out as described in Annex 1 and the output or result that triggers payment was achieved. Your real costs are not the test.

For a small company the practical change, in my reading, is that you report work completed rather than costs incurred, so cash flow follows the completion of work packages. I could not verify in the general documents how a given call splits payments or treats indirect costs inside the lump sum, so read the topic conditions before judging whether it suits your cash position.

SME status: a status, not a role

"Is an SME partner the same as a consortium partner?" No. In the grant agreement the roles are coordinator, beneficiary, affiliated entity, associated partner, subcontractor and others. SME is a status of an organisation, as is large company or non-profit. An SME can be a coordinator, a beneficiary or an associated partner. Associated partners take part without the right to charge costs. I found no "industrial partner" category in the AGA.

The definition and how it is checked

An SME, under Commission Recommendation 2003/361/EC, is an enterprise engaged in an economic activity, with fewer than 250 persons and an annual turnover not exceeding EUR 50 million and/or an annual balance sheet total not exceeding EUR 43 million. The ceilings are calculated including the staff, turnover and balance sheet of partner and linked enterprises, not only your own.

• When SME status does not affect eligibility or funding, you simply self-declare it during registration.
• When the call makes SME status an eligibility criterion, or gives a higher funding rate or other advantage, you go through the SME self-assessment wizard in the Participant Register, using the financial figures of the last approved accounting period of your organisation and related ones.
• If the Central Validation Service asks, you provide the ownership chart, shareholders and approved accounts of your linked and partner entities. Start-ups with no closed accounts can qualify with a business plan estimate.
• The EU can check at any moment, and a false declaration can lead to termination and recovery of amounts paid.

What happens if your SME status changes

Under the two-year rule of the Recommendation, status depends on two consecutive accounting periods: you lose it only if you are above the ceilings for two consecutive periods. The exception is a merger or acquisition: the status is lost at once from the date of the transaction if the combined group exceeds the ceilings. The self-assessment wizard looks at one period only, so a company that was below the ceilings the year before should ask the Central Validation Service for a formal validation that takes both periods into account. You must update the data in the Participant Register through your LEAR.

What the change means depends on what the SME status was doing for you. In the General Annexes the funding rate depends on the action type and on non-profit status, so I found no mechanism by which losing SME status lowers the rate of a RIA or IA beneficiary. But the AGA says conditions for the funding rate must normally be met throughout the action. And it says the granting authority may terminate a participation if a change in the beneficiary's situation calls the award into question. Its example is an SME acquired by another company, in a grant where being an SME was an awarding condition: the grant was terminated. In most cases of lost eligibility, the AGA adds, the authority simply asks the consortium to replace the partner or to change its role. Costs become ineligible from the date of the change. The SME owner unit cost also requires an SME. So: tell your coordinator early, and check whether your topic made SME status a condition.

Financial capacity: what is checked for a small company

Financial capacity is a check that applicants have stable and sufficient resources, done during grant preparation. Under the General Annexes it is normally done for the coordinator when the requested grant is EUR 500,000 or more, with two exceptions: public bodies and international organisations, and requests of EUR 60,000 or less. For other applicants it is done if needed, and the Online Manual notes that specific programme rules can apply. So a small non-coordinating partner is often not checked, but can be.

• What you provide. Typically profit and loss account and balance sheet for the last two closed financial years. Above EUR 750,000 requested, a statutory audit report if one exists or is legally required, otherwise a signed declaration on the validity of the accounts. Start-ups with no closed accounts provide a business plan for one year, and recently created entities with one closed year are assessed on that year.
• What is looked at. Neutral financial indicators (liquidity, financial autonomy, solvency, profitability), plus dependency on EU funding and deficit and revenue in previous years.
• Low turnover. I found no minimum turnover threshold in any of these documents. What the check examines is whether resources are sufficient for your share of the project, which is why a very small company in a large project can raise questions.
• If the result is poor. The granting authority may ask for more information, pay prefinancing in instalments, propose no prefinancing, or request replacement of the applicant or reject the proposal. A valid assessment lasts 18 months from the closure date of the most recent accounts.

UK and Swiss SMEs in consortia

Both countries are on the list of countries associated to Horizon Europe in the 2026-2027 General Annexes, so entities established there can be beneficiaries eligible for funding.

• United Kingdom. Associated to the entire programme for award procedures implementing the Union budget for 2024 and onwards, with one exception: the EIC Fund, the equity part of the EIC Accelerator.
• Switzerland. Association applies retroactively from 1 January 2025, with the agreement signed on 10 November 2025. For earlier calls (2021 to 2024) the Swiss government funded Swiss participants directly, not the EU.

The SME test uses the same definition and is applied to the whole group of linked and partner enterprises, wherever they are. For a UK or Swiss company, check the dates of the call you are applying to.

If you are building a proposal, my guide on how to write a Horizon Europe proposal covers the structure, and Horizon Europe for SMEs covers which actions to look at. For a broader map of instruments, see EU funding for startups in 2026.

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