Funding Fees Policy Guidance


Every local authority has its own views on funding wording. We know, for example, that some local authorities say you can do this, or you must do that and their advice does not align with other local authorities. You should read your local authority funding contract – the one you signed when you agreed to accept funding – alongside this more general information.

No advice or guidance can protect you against funded parents who leave in the middle of the term, double claim with a different setting, fail to update their funding code, don’t fill in paperwork promptly or fail to turn up for their child’s sessions, meaning the local authority takes the funding money back. You can do all you can with your own Fees Policy to protect yourself, but there are always going to be scenarios which mean you may lose funding.

The background

Government funding for 2, 3 and 4-year-olds – 2-year-olds from April 2024 – is intended to cover the cost to deliver 15 or 30 hours of flexible early education a week, term time only (38 weeks a year).

Some local authorities require providers to have a funding policy as a condition of receiving funding.

Note that some local authorities also require providers to have an admission policy. That is not covered in this guidance.

• The funding policy and payments / attendance registers might be audited by the local authority.

• The funding policy should be made available to eligible parents.

• The funding policy will include details of any additional charges and what parents need to do if they choose not to pay the additional charges.

• DfE guidance to Local Authorities states that the funding policy must be consistent for all funded families.



The DfE statutory guidance to local authorities (funding guidance)

Childcare Choices website - parents should use this to check their eligibility.

Some of the funding rules

The Childcare Choices website states: ‘What isn't covered? These childcare offers are not intended to cover the costs of meals, other consumables (such as nappies or sun cream), additional hours or additional activities (such as trips). Providers may charge a fee for these additions. If you choose to pay for these it is an arrangement between you and the childcare provider. However, you must not be required to pay any fee as a condition of taking up 15- or 30-hours place and must be offered alternative options.

Note in this guidance, consumables are called an ‘additional care package’.

The funding guidance states that you need to give parents choices because extra fees must not be a condition of accessing funding. However, note that the word ‘voluntary’ has been removed from the April 2024 funding guidance. Sometimes, you might choose to waive or reduce food costs – other times you can support parents to bring their child’s food by providing them with a sample menu and information about healthy eating and portion sizes. Note that in the case of parents bringing food, items must follow latest DfE guidance because that’s what you are inspected on by Ofsted and if you have a ‘no nuts’ rule, parents must agree to follow your risk assessment.

This information will be useful when you are writing your Funding Fees Policy:

2-year-olds - if your normal daily or hourly fees are lower than the funded hours paid by the local authority, there is nothing to say you cannot charge an additional fee. However, some local authorities advise that you should consider that this might not be in the spirit of the funding offer.

3- and 4-year-olds - if your normal daily or hourly fees are higher than the funded hours paid by the local authority, you must not charge a ‘top up’. The local authority might consider a ‘top up’ to be the exact difference between the funding rate and your usual hourly rate.

Additional charges - the funding guidance and the Childcare Choices website states that funding is not intended to cover the cost of meals, consumables, additional hours or additional services. If added to the invoice, additional charges must be clear, transparent and itemised so parents understand what you are asking them to pay. In this guidance ‘consumables’ are part of an additional care package.

Giving options - if parents choose not to pay additional charges for funded sessions, they must be given options – detailed in the Funding Fees Policy – to access the funded sessions at no extra cost.

Admissions - in addition to the Funding Fees Policy, parents must be informed about your admissions criteria – which days, hours and / or sessions their child can access as funded provision. The funding guidance states that the admissions policy must be flexible.

Stretched hours - if you offer the funded hours stretched across term time and holidays (less hours a week but totalling the same number of hours over the term), you might find it helpful to include total hours offered on the invoice and then add up hours delivered as the weeks and months go on.

Late payment fee - as the local authority are paying for the funded hours, you cannot charge parents a late payment fee if your local authority does not pay you on time.

Registration fee – sometimes called a sign-up fee - the funding guidance states that you cannot ‘require parents to pay a registration fee as a condition of taking up their child’s ... place.’

Over-claiming - note that you can only claim funding from the local authority for the time the child is contracted to attend. For example, if they attend 14 hours a week and you cannot legally claim 15 hours a week funding. This is illegal and a breach of the local authority contract you signed.

Lunchtimes – the funding guidance states that you need to ensure, ‘Children are able to take up their ... hours in continuous blocks and avoid artificial breaks being created throughout the day, for example, over the lunch period.’ This means that you cannot create a paid lunch break in the middle of the day.

Deposit – you can charge a deposit to hold a funded space, but it must be refunded at the start of the contract. The funding guidance states that you can keep it if a parent ‘fails to take up their place without sufficient notice.’ Note that ‘sufficient’ is not defined in the guidance. You should also consider whether requesting a deposit might prevent disadvantaged families from accessing your service.

In addition to the funding policy

Funding contract - parents must agree to sign and date the local authority funding contract on request (usually renewed termly when they have reconfirmed the code).

Updating the code - parents must agree to update their funding code online termly. If they fail to update their funding code within the timescale required, they might not receive their full hours.

Other benefits - parents will lose any tax-free childcare they previously claimed for the hours they receive funding. This means they will need to adjust their tax-free childcare claim if they want their child to attend during for holiday periods which are not covered by the funding.

Buying extra hours - your usual contract and Fees Policy is for additional hours purchased by parents, extra to any funded hours they are entitled to and is a private arrangement between you and parents.

Invoicing - if parents want to buy additional hours or if there are additional fees because of, for example, late collections, these will be shown separately on the invoice.

Paperwork - parents will need to sign your contract so you are insured and read your Fees Policy.

Business planning - you should check local hourly / daily rates to ensure you competitive as well as providing a sustainable service.

Note – ellipses have been used instead of the contentious word ‘free’ when directly quoting from the funding guidance for local authorities.

Some frequently asked questions answered

Do I have to offer funding? Childminders are self-employed and it’s up to you which families you accept.

Who can offer funding? Ofsted registered providers including childminders, nurseries and pre-schools.

Can I offer funding to family members? No.

Can nannies offer funding? No.

Extra paperwork

Is there any extra paperwork? Yes, you might need extra policies and there will be a local authority contract for parents to sign. You will also have to use the local authority funding portal to submit figures.

Do I need to invoice parents? Yes, to show funding at £0.00, any extra hours at your normal rate (you will need a separate contract for any extra hours) and any additional charges – for example, for food and an additional care package - more information to follow.

Local authority questions

What if I can’t work the portal? You will need to speak to your local authority. Do you have a trusted colleague who can help you?

Why do local authorities pay different amounts? The Government gives each local authority a budget and they spread it across all their funded providers. Local authorities make local decisions.

What if parents leave mid-term? You will need to speak to your local authority they all work differently.

How much of the funding do local authorities keep? Local authorities are allowed to keep 5% of the total funding they receive from the Government.

What if my local authority doesn’t pay monthly? This can be tricky for those childminders who receive Universal Credit and for budgeting / cash flow. It is a local decision which should be based on provider consultation – you will need to speak to your local authority.

Funding and holidays

What is stretching? Parents might want the funding to stretch into the holidays, so you are offering the funding for year-round care. If you are happy with this arrangement, you can stretch the funding.

How do I stretch funding? If parents want you to offer fewer hours / week over more weeks / year, you can calculate this. You might find it useful to keep a running total at the bottom of the parent’s invoice showing hours available and hours used, so they can see exactly what they have received and what is owed during the term.

Can I use unused hours from 1 term in next term? Not usually no, but your local authority will be able to advise you.

Do I have to open on bank holidays? No, you do not have to open on bank holidays if you are normally closed on those days.

Can I take holidays in term time? Yes, but you will need to inform your local authority and they might tell you to offer the missed hours elsewhere (if ratios allow) or pay back the portion of funding not used for the child’s care.

Parent questions

Can I offer funding for overnight care? No, funding cannot be used before 6am or after 8pm. It also cannot be used to pay for childcare for more than 10 hours / day, but there isn’t a minimum session length.

What if parents don’t want holiday care? This is a private arrangement between you and parents. You will need to weigh up the pros and cons of offering term time only care or advertising for other children who attend during the holidays. You might also want to, for example, expand your out of school provision.

Can we split the difference with the parent if the funding rate is higher than the normal rate? No, that would be fraud. 

HMRC considerations

Funding is income and must be included on your tax return.

Additional fees are income and must be included on your tax return.

Expenses - it doesn’t make any difference to your HMRC reporting if parents pay extra for food, outings and / or any extra fees (additional to the funding). You list your outgoings as expenses and parent payments in your income.

You do not need receipts for individual payments under £10; food receipts are required by food hygiene, but not for HMRC.

A possible way forwards for funding...

All funded parents sign 2 contracts – the local authority funding contract and your own contract.

All funded parents receive 2 fees policies – a Funding Fees Policy with the funding contract and a Fees Policy with your own contract - you keep them both separate because they serve different purposes.

Note you must have a competed and signed contract with parents for insurance purposes.

Funding Fees Policy – things to consider

Funding for 2-year-olds could be offered between, for example, 9am and 4.30pm - 7.5 hours / day and a minimum of 2 days a week.

Note – the basic premise here is that parents provide children with breakfast and tea at home, reducing your costs – or they are included in the hours covered by your contract and you charge them extra for the meals – or they bring their child’s food. Doing it this way, you are not creating an ‘artificial break’ in the middle of the day which is not allowed in the funding guidance.

Funding for 3- and 4-year-olds can be spread through the week depending on your available spaces.

Note – some local authorities offer a flexibility supplement so you will need to think about how to offer the funded hours to parents if you want to access this.

There is an additional fee stated in your Funding Fees Policy for morning and afternoon snack and lunch – or parents bring healthy food (provide a list of the food you supply as examples). If parents don’t bring food, you charge the fee detailed in your Fees Policy.

Funded children have breakfast and tea at home, or you add an agreed fee to the invoice for those hours and the food.

There is an additional fee stated in your Funding Fees Policy for an additional care package, or parents bring a bag with them every day (provide an itemised list). If parents don’t bring the items in the care package you have put together, you charge the fee detailed in your Fees Policy.

Nappies are provided by parents.

There is an additional fee for costs of outings (entrance fees etc). Unfortunately, if parents don’t agree to this, you might not be able to care for their child if you go out every day – this is one for you to decide.

Your Fees Policy – things to consider

If parents of funded 2-year-olds want childcare outside your funded hours – for example, before 9am or after 4.30pm, they pay for it using your contract and your Fees Policy. Think about your fees – they must be sustainable and should reflect fees charged by childminders and nurseries in the local area.

All families pay extra for food, or they bring healthy alternatives (see Appendix 4).

There is a fee for an additional care package, or parents bring a bag with them in every day (provide a list). If they don’t bring the bag, charge them using your Fees Policy (see Appendix 5).

Nappies are provided by parents.

Baby food – formula and weaning – is provided by parents.

Parents pay for entrance fees when you take children on outings.

Your part of the invoice is also for, for example, early drop off and late collection fees and other costs through the month.

Food cost ideas

For example, you might charge an additional fee / day fee for all children which covers:

• Morning snack - £x.xx

• Lunch - £x.xx

•Afternoon snack - £x.xx

Parents give their child breakfast at home, or it costs them an additional fee detailed in your Fees Policy; parents give their child tea at home, or it costs them an additional fee detailed in your Fees Policy.


You might choose to waive these additional charges for funded 2-year-olds if the funding is higher than your normal fees.

If you say your funding day is 9am – 4.30pm (7.5 hours) and parents of funded 2-year-olds want to buy extra hours to cover breakfast and tea, these will be part of your contract and set out in your Fees Policy.

Food costs will depend, of course, on where you shop and the type of food provided. All charges must be reasonable for HMRC and CMA purposes.

Care package cost ideas

For example, you might detail a care package for the child (see Appendix 5) and say that if parents choose not to send the items set out in the care package, you will charge them £xx / day.

Appendices to this guidance

PDF versions of the documents are free to all members. Word versions are available for gold members only.

Appendix 1 – Invoicing parents

Appendix 2 – Ombudsman rulings

Appendix 3 – Funding letter to parents

Appendix 4 – Meals, snacks and drinks

Appendix 5 – Personal care package

Appendix 6 – Sample funding fees policy

Sample Funding Invoice

Additional funding fees policies

The following policies have been written to support funded providers who are required to have them in writing for their local authority (LA) funding offer:

• Inclusion policy

• EYPP / DAF policy

• Pattern of delivery policy

• SEND local offer

These policies are not required by Ofsted or the Early Years Foundation Stage (EYFS) 2024 statutory framework for England.

Policies will vary depending on your LA expectations so the information shared here is very broad and will need to be adapted for your use.

Additional funding fees policies  

Don’t have an account? Register free today

Create a free account

Sign up in one minute, no payment details required.

Member benefits include:

  • Add a free profile detailing your requirements or services
  • Search by postcode for local members near you
  • Read and reply to messages for free
  • Optional paid services available