6 Mins
Written by: David Taylor
Partner & Head of Grant Audits
Last reviewed: 2 November 2026Securing Scottish Enterprise funding can provide valuable support for ambitious businesses looking to invest, innovate and grow. However, receiving a grant is only the first stage. To recover funding successfully, organisations must demonstrate that the costs they claim meet the conditions set out in their grant offer letter and supporting guidance.
In practice, many funding challenges arise not because a business has acted improperly, but because there is uncertainty over which costs qualify, how expenditure should be evidenced or when costs become claimable.
Understanding the difference between eligible and ineligible expenditure helps businesses maximise funding recovery while reducing compliance risks during claim reviews and assurance checks.
What are eligible and ineligible costs under Scottish Enterprise funding?
Eligible costs are project-related expenses that meet the conditions of the Scottish Enterprise grant and can be supported by appropriate evidence. Ineligible costs are expenses that fall outside the approved project scope, funding period or grant requirements, meaning they cannot be recovered through a funding claim.
Key Takeaways
- Only costs that meet specific grant conditions can be claimed through Scottish Enterprise funding.
- Having incurred a business expense does not automatically make it eligible for grant recovery.
- Robust evidence, procurement records and financial documentation are often required to support claims.
- Labour costs, equipment purchases and professional services may be eligible depending on scheme rules.
- Early review of grant conditions can reduce funding delays, adjustments and compliance issues.
Why Understanding Eligible Costs Matters
Most Scottish Enterprise grants operate on a reimbursement basis. This means organisations typically incur expenditure first before submitting evidence to recover grant funding.
As a result, finance teams often face questions such as:
- Can staff costs be claimed?
- Is specialist equipment eligible?
- What procurement evidence is required?
- Can overheads be included?
- What happens if costs change during the project?
The answers depend on the specific programme, grant offer letter and approved project budget. Businesses should avoid assuming that a cost is eligible simply because it contributes to the project.
For a broader overview of Scottish Enterprise funding requirements, see Scottish Enterprise Grants: What Businesses Need to Know.
What Are Eligible Costs?
Eligible costs generally share three characteristics:
- They directly relate to the approved project.
- They fall within the approved funding period.
- They can be supported by sufficient evidence.
While requirements vary between programmes, eligible expenditure may include the following.
Staff Costs
Many Scottish Enterprise projects allow businesses to claim employee costs associated with project delivery.
Examples may include:
- Project managers
- Engineers
- Technical specialists
- Research and development staff
- Dedicated project personnel
Businesses should retain evidence such as:
- Employment contracts
- Payroll records
- Timesheets where required
- Cost allocation schedules
Staff cost eligibility is often an area requiring careful review. Readers may also find value in Can You Claim Staff Costs Through Scottish Enterprise Funding?
Equipment and Capital Expenditure
Some grants support investment in machinery, manufacturing equipment or specialist technology required for project delivery.
Evidence usually includes:
- Supplier invoices
- Proof of payment
- Asset records
- Procurement documentation
The asset should normally align with the approved project scope and funding objectives.
External Consultancy and Professional Fees
Many businesses engage specialist advisers during funded projects.
Potentially eligible costs may include:
- Technical consultants
- Specialist engineering support
- Market research services
- Project-specific professional advice
Claims should be supported by contracts, invoices, procurement records and proof of payment.
Training and Skills Development
Certain programmes support workforce development where training contributes directly to project objectives.
Supporting documentation may include:
- Training provider invoices
- Attendance records
- Course materials
- Payment evidence
What Are Common Ineligible Costs?
Although individual schemes differ, some expenditures are commonly excluded from Scottish Enterprise funding claims.
Costs Incurred Outside the Approved Project Period
Even where expenditure is directly related to the project, costs incurred before approval or after the project completion date may not qualify.
Project timelines should therefore be monitored carefully.
Unsupported Expenditure
A cost may appear reasonable, but if supporting evidence is unavailable, funding recovery can be difficult.
Examples include:
- Missing invoices
- Missing proof of payment
- Insufficient project records
- Poor audit trails
Funders typically require expenditure to be both eligible and evidentially supported.
General Business Operating Costs
Routine business expenses that would have been incurred regardless of the project are frequently excluded.
Examples may include:
- General administration costs
- Standard utility bills
- Existing overheads
- Day-to-day operational expenditure
Eligibility depends on the specific grant rules and approved budget categories.
Unapproved Changes to Project Scope
Problems can arise when organisations alter project activities, suppliers or budget allocations without obtaining required approvals.
Even genuine project changes may affect cost eligibility if they fall outside agreed funding terms.
Recoverable VAT
Where VAT can be recovered by the organisation, it is generally not claimable through grant funding.
Finance teams should review grant guidance carefully to confirm the treatment applicable to their organisation.
Evidence and Documentation Requirements
The ability to demonstrate expenditure is often just as important as the expenditure itself.
Typical documentation requested during claim reviews may include:
- Grant offer letters
- Approved project budgets
- Supplier quotations
- Procurement records
- Contracts
- Purchase orders
- Invoices
- Bank payment evidence
- Payroll records
- Timesheets
- Project progress reports
Maintaining records throughout the project is usually far easier than attempting to reconstruct evidence later.
Businesses seeking further guidance on audit readiness should refer to How to Prepare for a Grant Audit.
Common Compliance Challenges
From our experience supporting funded organisations, a number of issues appear regularly across assurance and compliance reviews.
Misunderstanding Budget Categories
Project teams sometimes assume expenditure is eligible because it falls broadly within project activity. However, eligibility is normally determined by the approved budget structure.
Weak Labour Cost Evidence
Where staff costs are claimed, incomplete records can make it difficult to demonstrate the time spent on project activities.
Procurement Issues
Some grants require organisations to evidence value for money through quotations, tender exercises or supplier evaluations.
Missing procurement records can lead to delays during claim reviews.
Managing Multiple Funded Projects
Organisations operating several grants simultaneously may struggle to allocate costs accurately between projects.
Strong project coding and financial controls can significantly reduce this risk.
For examples of wider compliance weaknesses, readers may also find Common Grant Audit Failures helpful.
Practical Recommendations for Finance Teams
Businesses can reduce compliance risk by taking a proactive approach:
- Review funding conditions before expenditure is incurred.
- Maintain a project-specific evidence file from day one.
- Track project costs against approved budgets.
- Retain procurement documentation throughout the project.
- Ensure payroll and labour cost records are complete.
- Monitor project timelines carefully.
- Seek clarification before making significant project changes.
- Carry out periodic internal reviews before submitting claims.
How Henderson Loggie Can Support
Henderson Loggie’s Grants Audit team supports organisations receiving funding from Scottish Enterprise, Innovate UK, Horizon Europe, Turing and other public funding programmes.
The team helps organisations understand funding requirements, improve documentation processes, strengthen audit trails and prepare for independent assurance activities. More information can be found on Henderson Loggie’s Grant Audits service page.
Conclusion
The distinction between eligible and ineligible costs can have a significant impact on the value of funding ultimately recovered through a Scottish Enterprise project.
While grant conditions vary between programmes, successful claims typically rely on three foundations: eligible expenditure, strong supporting evidence and effective project governance. Organisations that understand these requirements early are often better positioned to recover funding efficiently while reducing the risk of compliance challenges later in the project lifecycle.
Frequently Asked Questions
An eligible cost is expenditure that directly supports the approved project, falls within the agreed funding period and complies with the conditions contained in the grant offer letter. The cost must usually be supported by appropriate evidence such as invoices, contracts and payment records.
In some programmes, yes. Staff costs may be claimable where employees are directly involved in delivering the approved project. Organisations are often required to maintain payroll records, cost calculations and supporting timesheet evidence where applicable.
Ineligible expenditure may be excluded from the funding claim, reducing the amount of grant recovered. Where significant issues are identified, organisations may be asked to provide further evidence or explanations. More detailed guidance is available in Henderson Loggie’s article on What Happens If a Grant Audit Finds Errors?
Organisations should normally retain invoices, proof of payment, contracts, procurement records, project budgets, payroll documentation and relevant project records. Maintaining a clear audit trail throughout the project can help support efficient claim reviews.
Funding agreements normally require organisations to retain records for a specified period after project completion. The exact requirement varies between programmes. Businesses should review their grant conditions carefully and ensure documentation remains accessible for any future compliance reviews or assurance checks.
