Government-funded childcare entitlements are a significant part of most childcare providers' income. Understanding the funding landscape — including eligibility, claiming processes, and top-up fee rules — is essential for financial sustainability.
This guide explains how funding works from the provider's perspective, not the parent's.
The free entitlements
There are several funded childcare entitlements that parents can claim through your setting:
Provider agreements
To deliver funded childcare, you must have a provider agreement with your local authority:
- Sign the agreement: Contact your local authority early years team to set up a provider agreement. This is separate from Ofsted registration
- Funding rates: Local authorities set their own provider funding rates (within the government's national funding formula). Rates vary significantly between areas
- Headcount process: Submit termly headcount data to your local authority confirming which children are receiving funded hours
- Eligibility codes: Parents provide a 30-hour eligibility code. You must verify this with your local authority before claiming funded hours
- Payment schedule: Funding is typically paid termly in arrears, though some authorities pay monthly. Budget for cash flow accordingly
Top-up fees and consumables
The rules on charging parents alongside funded hours are strict:
- No top-up fees: You cannot charge parents for the funded hours themselves. The funded entitlement must be genuinely free
- Consumables: You may charge for optional extras such as meals, nappies, sun cream, and trips — but these must be genuinely optional and parents must not be required to pay them as a condition of accessing funded hours
- Additional hours: You can charge your normal rate for any hours beyond the funded entitlement
- Deposits: You may charge a refundable deposit to secure a place but cannot require payment for funded hours
Ofsted and local authorities investigate complaints about providers charging for funded hours.