Navigating the funded childcare scheme: help for providers

Delivering the 30 hour Funded Childcare Hours scheme offers vital support for families, yet it places significant demands on nurseries. As a nursery owner, you’re tasked with weaving through detailed Department for Education (DfE) guidance, ensuring compliance, and managing the gap between funded rates and your actual costs. So, how can you manage it effectively?

Understanding funding and eligibility

The DfE sets a hourly funding rates for each eligible three and four year-old child with fees based on agreements with individual local authorities. On paper, the figures look fair, but when you examine your nursery’s real-world expenditures (staff wages, rent, utilities, insurance, consumables, and administrative overheads) you quickly realise that the gap is significant. Staffing alone often accounts for roughly 70% of a nursery’s outgoings, and that proportion only rises if you employ higher-qualified staff or struggle with recruitment in your area.

To qualify for the funded hours, parents must follow specific eligibility rules. All three- and four-year-olds automatically receive 15 hours, for 38 weeks of the year, while working families (subject to criteria) can apply for the full 30 hours, for 38 weeks of the year. Certain two-year-olds from low-income or disadvantaged households may also be eligible for 15 hours. As a provider, it is essential that you verify each parent’s 11 or 12 digit HMRC code each term.

In practice, this means building an eligibility checklist into your enrolment and records process. And keeping it updated, alongside the changes that happen from time to time.

By September 2025, eligible working parents will be able to claim 30 hours of funded childcare per week, over 38 weeks of the year, from the age of nine months up to their child starting school. These hours can be used over 38 weeks during school term time, or up to 52 weeks if you use fewer than your total hours per week. Given the huge impact this will have on demand, this has been rolled out in a staggered approach.

“Optional extras”: what you can, and can’t, charge parents for

At the heart of many funding disputes lies the principle that funded hours must be “free at the point of delivery.” In other words, you cannot charge parents any additional “top-up” to bridge the difference between your normal hourly fees and the government’s funded rate for those core hours.

The funding nurseries receive from local authorities is intended to only cover the basic requirements and is not intended to cover the cost of meals, consumables, additional hours, activities, and all the educational enhancements that are an integrated part of the nursery offering. Accordingly, you will often see nurseries apply health, hygiene, food, and additional services charges to funded hours.

The DfE guidance draws a clear line between “core” provision (staff, space, heating, lighting, and basic consumables) and “optional extras”. Optional extras are any goods or experiences that go beyond the statutory minimum, such as hot meals, branded uniforms, nappies and wipes, specialist activities like forest school, or certain practitioner-led workshops (e.g., music or language classes). You may charge parents for these extras, but only if you make them genuinely voluntary, itemise them clearly, and allow parents to decline without affecting their child’s entitlement.

To structure optional extras properly, consider creating a separate “Optional Extras” price list that you include in your parent handbook or send alongside each invoice. Whenever a parent selects an extra, issue a clearly itemised charge and remind them (ideally in writing) that they can supply their own nappies, snacks, or other items instead. This will help to preserve transparency and protect yourself against future refund claims.

Practical tips to stay compliant

Staying compliant requires careful record-keeping and timely action. This could mean setting calendar reminders, standardised email templates, and regular eligibility checks.

It’s also vital to maintain a daily attendance register that logs arrival and departure times for every funded child. Local authorities will audit those registers against your monthly funding claims, so accuracy is critical. In addition, be aware of how many funded absence days you can claim before extra absences may lead to clawbacks. Set up alerts for children who approach that threshold and remind parents of your absence policy to prevent unexpected funding reductions.

Another tip is to submit your funding claims promptly. Each local authority has its deadline for the following month’s funding. Late or incomplete claims can delay your payment, creating cash-flow issues. Build a simple process in which one member of staff cross-checks the register, verifies code validity, then finalises the claim ahead of the deadline.

Also make sure to avoid practices that may lead to refund claims. To minimise risk of an Ombudsman ruling going against you, always separate your invoicing. Ensure you list “Funded Hours” at zero cost, and itemise “Optional Extras” separately. If a parent raises a dispute, don’t wait. Reach out to your local authority’s EYFS funding team for guidance.

Our final tip is to make sure you understand any funding shortfall. A good first step is to calculate your actual cost per funded hour and identify any areas to help reduce costs.

Communicating clearly with Parents

Transparent communication with parents is essential to prevent misunderstandings and disputes. Begin by embedding a clear funding section into your parent handbook. Explain how the FCH scheme works: which hours are funded, which are not, and why optional extras incur extra costs. Provide a simple flowchart or checklist, such as:

1. “Check if your child is eligible by visiting HMRC portal by the relevant deadline.”
2. “Email your renewal code to us at least two weeks before term starts.”
3. “Inform us if you wish to decline optional extras; otherwise, we will assume you agree.”
4. “If you opt into extras, you will receive a separate invoice.”

Develop standard templates for key communications:

• A “Code Reminder” email six weeks before the term ends.
• A “Notice of Optional Extras” letter or email that outlines all itemised costs, from lunches and nappies to forest school sessions, and clarifies payment deadlines.
• A “Late Payment/Non-Payment” escalation letter, should any extras remain unpaid.

By presenting this information succinctly, alongside clear, dated email records, you demonstrate to both parents and local authority auditors that you adhere strictly to guidance. This transparency builds trust and reduces the risk of conflict, ensuring parents feel informed rather than ambushed by unexpected fees.

What’s coming down the line?

As the landscape of early years funding continues to evolve, it’s crucial for nursery owners to stay vigilant for updates from the DfE, local authorities, and sector organisations. Sign up for email alerts from your local council’s early years team, consult the DfE’s website regularly, and engage with forums run by the Early Years Alliance or other professional associations. Safeguard your nursery’s financial health in the months and years ahead!