Childcare Funding Entitlements: A Guide for Providers

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 working-parent entitlement code from the Childcare Service. You must verify this through your local authority's eligibility checking service 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. Statutory charging guidance, effective from 1 April 2025, tightened them further:

• 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. Parents must be able to opt out or supply their own (for example a packed lunch or their own nappies), and you cannot make paying these charges a condition of accessing a funded place
• Itemised invoices: Invoices and receipts must itemise any additional charges so parents can see exactly what they are paying for alongside the 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

These rules are enforced by your local authority through your provider agreement — local authorities investigate complaints about providers charging for funded hours and can withdraw funding for breaches.