Capital Usage

One of the more complex cost categories available under Innovate UK funding is capital usage.

This category allows the Awardee to claim the depreciation of assets used on the project, including both assets already owned at the project start date and assets purchased during the project. It does not allow the full purchase cost of an asset to be claimed in the quarter in which it is acquired.

The amount that can be claimed is calculated using the following factors:

The net purchase price of the asset (assuming VAT is recoverable by the business).
The estimated useful economic life of the asset, which may extend beyond the project period if the asset is used by the business before or after the project. This should tie into to the normal depreciation accounting policy of the business, barring where assets have been purchased specifically for use on the project.
The utilisation rate during the project, reflecting the proportion of time the asset is used for eligible project activities. For example, if the asset is used on the project for 50% of the time and for non-project activities for the remaining 50%, only 50% of the eligible depreciation can be claimed. This rate may well change quarter to quarter.

Example calculation:

As an example, and without trying to go too mathematical, if the following circumstances existed:

Existing asset, purchased for £120,000 net
4 years straight line depreciation (48 months)
60% project utilisation in Quarter 1 of the project.

The reclaimable cost within the Capital Usage cost category would therefore be:

£120,000 net cost x 3 months (Qtr 1) x 60% utilisation rate = £4,500

48 months

This reflects three months' depreciation, adjusted to account for the proportion of time the asset is used on the project.

The good news is that you don't need to calculate this manually, we have a template calculator that does the work for you! Please feel free to ask if you would like a copy.

Testing requirements:

When reviewing your capital usage claims, we will typically perform the following checks:

Review the calculation on which the claim is based (as outlined above).
Verify the asset value by tracing it to the purchase invoice and confirming payment through bank statements or other appropriate evidence.
Assess the depreciation rate to ensure it is consistent with the business's normal accounting policies. Where assets have been acquired specifically for the project, we may ask you to confirm this.
Understand the basis of the utilisation percentage and how it has been determined to ensure it is reasonable and appropriately supported.

The above assumes that the business uses the straight-line method of depreciation. If the business instead uses the reducing balance method, we may also request the fixed asset register to agree the asset's net book value at the project start date for any existing assets included in the claim.