Guidance

Early years entitlements: local authority funding operational guide 2025 to 2026

Published 10 December 2024

Applies to England

© Crown copyright 2024

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1. Introduction

1.1 Who is this publication for?

This guide is for:

  • local authorities
  • early years providers
  • other early years stakeholders who may find it useful

Local authorities should follow this guidance when funding childcare providers to deliver the early years entitlements in the financial year 2025 to 2026.

The early years entitlements are:

  • the 15 hours[footnote 1] entitlement for eligible working parents of children from 9 months up to 2 years old (due to be extended to 30 hours[footnote 2] from 1 September 2025)
  • the 15 hours entitlement for eligible working parents of 2-year-old children (due to be extended to 30 hours from 1 September 2025)
  • the 15 hours entitlement for families of 2-year-olds receiving additional support (formerly known as the 2-year-old disadvantaged entitlement)
  • the universal 15 hours entitlement for all 3 and 4-year-olds
  • the additional 15 hours entitlement for working parents of 3 and 4-year-olds

The guide also covers the additional funding available through:

  • maintained nursery school (MNS) supplementary funding for 3 and 4-year-olds
  • the disability access fund (DAF) for eligible children accessing the early years entitlements
  • the early years pupil premium (EYPP) for eligible children and looked after children accessing the early years entitlements

Local authorities are expected to follow this guide, which is intended to help them to fund early years providers to deliver the early years entitlements in accordance with their legal obligations and government policy. It is not intended to cover the way in which the Department for Education (DfE) funds local authorities themselves, as this is set out separately in the early years funding technical note accompanying this guide, and will also be set out in the forthcoming dedicated schools grant (DSG) technical guide and the DSG: conditions of grant for 2025 to 2026.

Where this guide uses the word ‘must’, this refers to a local authority’s legal obligations set out in legislation or DSG conditions of grant, which a local authority is required to comply with.

Funding for the early years entitlements and other funding streams listed above form the early years block of the DSG. Details of local authority indicative funding allocations for the early years funding block in 2025 to 2026 will be published in December 2024.

We have provided further guidance relevant to the funding of the early years entitlements.

Early education and childcare: statutory guidance

High needs operational guidance

Schools forums operational and good practice guide

1.2 Monitoring and compliance

We will use the planned budget information provided by local authorities in their annual section 251 (s251) early years proforma to monitor compliance with all the policies set out in this guide and the underpinning regulations and DSG conditions of grant.

In previous years, we have published the early years benchmarking tool to support local authorities with their business planning. However, following the expansion of the early years entitlements, we are exploring changes to this tool and plan to publish an updated version containing the 2024 to 2025 planned budget s251 data in early 2025. In the meantime, we will publish a simplified tool containing the raw data provided by local authorities as part of their s251 returns for 2024 to 2025 to provide information to support local authorities with their business planning.

2.  Changes for 2025 to 2026

For the financial year 2025 to 2026, we are making a small number of changes to the operational guide. The updates that have been made are intended to ensure the funding system supports the continued rollout of the new entitlements and delivery of the existing entitlements.

The main changes to the guidance are:

  • an increased minimum pass-through requirement for local authorities in 2025 to 2026 – the pass-through rate will increase from 95% to 96%
  • an expectation that local authorities will announce their funding rates to childcare providers by 28 February 2025- we intend to mandate this as a requirement in the regulations from the financial year 2026 to 2027
  • changes to the special educational needs inclusion fund (SENIF) (section 6) and disability access fund (DAF) (section 8) sections of the guidance following a review of the department’s early years SEND funding arrangements, including an expanded section on expectations around SENIF arrangements, and greater detail on how DAF should be allocated and distributed

3. National funding to local authorities

3.1  DSG funding rates

The early years national funding formulae (EYNFF) are used to determine the hourly rates we use to fund individual local authorities for the early years entitlements through the DSG.

For the financial year 2025 to 2026, we will be providing each local authority with 3 separate hourly funding rates as follows:

  • an hourly funding rate for children aged 9 months up to 2 years for the eligible working parent entitlement
  • an hourly funding rate for both 2-year-old entitlements which will be the same for families of 2-year-olds receiving additional support and eligible working parents of 2-year-olds
  • an hourly funding rate for 3 and 4-year-olds for the universal and additional hours entitlements

To note: in the financial year 2025 to 2026 we have provided funding in respect of the September 2024 teachers’ pay award and this has been included in local authorities’ hourly funding rate for 3 and 4-year-olds and in the MNS supplementary funding hourly rates. This approach is in keeping with both the approach taken to mainstreaming funding for teachers pay and pensions in 2024 to 2025, and with our approach to incorporating funding previously distributed through the teachers’ pay grant (TPG) and the teachers’ pension employer contribution grant (TPECG) in 2023 to 2024. See funding for quality supplements in permissible supplements section for further information.

3.2 Funding formula updates

Since its introduction in April 2017, the 3 and 4-year-old formula has set the hourly funding rates that each local authority is paid to deliver the universal and additional entitlements for 3 and 4-year-olds.

In 2024 to 2025 we introduced a new national funding formula to determine the hourly rates for each of the new working parent entitlements, and for the entitlement for families of 2-year-olds receiving additional support. This new formula followed the same shape of the existing national funding formula for the 3 and 4-year-old entitlements, but took a slightly different approach in accounting for deprivation as part of the additional needs factor; rather than using FSM data only as a proxy for deprivation, the new formula used a ‘basket of measures’ approach, which used a combination of free school meals (FSM) data and a measure based on the income deprivation affecting children index (IDACI) as proxies for deprivation.

For 2025 to 2026 we have made no changes to either the 3 and 4-year-old formula, or the formula for 2-year-old and under, other than updating for the latest available data for the formula factors and accounting for the expansion to 30-hours of the working parent entitlement.

You can read more about the funding rates for all local authorities for 2025 to 2026, together with a technical note that provides more detail on the funding formula at early years funding: 2025 to 2026.

3.3 Funding allocations

Local authorities will be funded for early years provision through the early years block in the DSG. Funding for 3 and 4-year-olds and families of 2-year-olds receiving additional support will be based on data from the annual early years, school, and alternative provision censuses, with mid-year adjustment to the early years block of the DSG.

To ensure that local authorities are accurately funded for delivering the new entitlements, we will continue funding these entitlements using termly headcounts, and will fund on a revised allocation profile to better match how local authorities fund providers across the year in 2025 to 2026. Given the additional termly counts for the new entitlements in 2025 to 2026, the indicative allocations for these funding streams will be updated following the data collection each term. Further details can be found in ‘Section 3: final funding allocation methodology for 2025 to 2026’ of the ‘Early years data collection for the 2025 to 2026 financial year’ guide.

Funding for the early years entitlements is based on part-time equivalent (PTE) hours. We define 1 PTE as 15 hours across 38 weeks a year (that is, 570 funded hours per annum). This means the number of funded weeks (as a proportion of the full year) is applied to the PTE figures so that we can use a standardised method to calculate the funding allocations, whereby the annualised PTE is always multiplied by 15 hours and 38 weeks.  

For example, as the 2-year-old and under eligible working parents’ entitlements expand to 30 hours from September 2025, in the DSG allocations table for 2025 to 2026, funding for these entitlements will be presented separately showing: the allocation for the summer period (April to August) representing 15 hours, and the autumn to spring period (September to March) representing 30 hours. The adjustment to reflect the number of funded weeks for 15 hours and 30 hours is reflected in the PTEs figures, therefore you will see the calculation for both entitlements will be presented as being multiplied by 15 hours and 38 weeks.

3.4 Methodology for funding allocations for children of working parents aged 9 months up to and including 2-year-olds

The basis for funding allocations for these working parent entitlements in 2025 to 2026 will be as follows:

  1. Indicative allocations will be based on DfE’s estimated take-up numbers for the new working parent entitlements.

  2. Final allocations will be adjusted based on actual take-up for each term, collected through 2 additional headcounts we will ask local authorities to undertake in the 2025 summer and autumn terms and through the January 2026 census. While the new entitlements continue to be rolled-out in 2025 to 2026, local authorities will be funded for 13 weeks of provision in the 2025 summer term, 14 weeks in the 2025 autumn term and 11 weeks in the spring term to better match typical local delivery patterns in 2025 to 2026. Further details can be found in section 3 of the ‘Early years data collection for the 2025 to 2026 financial year’ guide.

The same method will also be used for allocating EYPP funding for children accessing the new working parent entitlements in 2025 to 2026.

Whilst these 2 additional headcounts could mean extra administration for local authorities, we hope this will be offset by the reassurance that they will be accurately funded for the hours they deliver.

We have published the guidance for the 2025 summer and autumn termly data collection for the new entitlements. This guidance also includes details about the 2025 to 2026 final funding allocation methodology for the new entitlements.

3.5 Methodology for funding allocations for families of 2-year-olds receiving additional support and 3 and 4-year-olds

The allocation methodology for the existing entitlements will remain the same as previous years. As such, the final funding allocations for 2025 to 2026 for the entitlement for families of 2-year-olds receiving additional support and the entitlements for 3 and 4-year-olds will continue to be based on five-twelfths of January 2025 child numbers (to cover the April 2025 to August 2025 period) and seven-twelfths of the January 2026 child numbers (to cover the September 2025 to March 2026 period), to reflect any changes in child numbers.

Local authority indicative funding allocations for all the early years funding streams will be published as part of the DSG allocations in December. The early years block allocations table will separately show the allocation amounts for each of the early years funding streams individually.

3.6 Table to summarise the basis for funding allocations for each of the early years entitlements

Entitlement Data used for funding purposes Methodology for funding allocations
The universal 15 hours entitlement for all 3 and 4-year-olds

The additional 15 hours entitlement for eligible working parents of 3 and 4-year-olds		 January 2025 and 2026 early years, school, and alternative provision censuses Allocations will be based on a five-twelfths and seven-twelfths split:

five-twelfths of January 2025 child numbers and seven-twelfths of the January 2026 child numbers
The 15 hours entitlement for eligible working parents of 2-year-old children (due to be extended to 30 hours from 1 September 2025) Summer and autumn 2025 termly headcounts and January 2026 censuses Allocations will be based on a 13/ 14 /11 split, that is:

thirteen-thirty-eighths of 2025 summer headcount, fourteen-thirty-eighths in the 2025 autumn headcount and eleven-thirty-eighths of the January 2026 censuses
The 15 hours entitlement for families of 2-year-olds receiving additional support (formerly known as the 2-year-old disadvantaged entitlement) January 2025 and 2026 early years, school, and alternative provision censuses Allocations will be based on a five-twelfths and seven-twelfths split:

five-twelfths of January 2025 child numbers and seven-twelfths of the January 2026 child numbers.
The 15 hours entitlement for eligible working parents of children from 9 months up to 2 years old (due to be extended to 30 hours from 1 September 2025) Summer and autumn 2025 termly headcounts and January 2026 censuses Allocations will be based on a 13/ 14 /11 split, that is:

thirteen-thirty-eighths of 2025 summer headcount, fourteen-thirty-eighths in the 2025 autumn headcount and eleven-thirty-eighths of the January 2026 censuses

4. Local authority funding of the entitlements - 96% pass-through requirement

4.1 Overview

In the summer of 2023, the previous government consulted on the minimum pass-through requirement and outlined their intention to increase this from 95% to 97% once the new entitlements were sufficiently embedded. This change to the minimum pass-through requirement will be introduced, and we are taking an initial step in introducing that change this year by increasing the minimum pass-through requirement for local authorities from 95% to 96% for 2025 to 2026. This new 96% requirement will apply separately to the entitlements for:

  • 9-month-old children up to 2-year-olds of eligible working parents
  • 2-year-old children of eligible working parents
  • 2-year-old children from families receiving additional support
  • 3 and 4-year-olds (universal and additional hours)

For 3 and 4-year-olds, whilst the minimum pass-through requirement is increasing, there is no change to the approach of how this will be calculated, and the pass-through requirement will apply to the universal and additional hours in combination. For 2-year-olds and under, the requirement will apply to each of the entitlements individually.

This means that, unless the department approves a disapplication request (see disapplication from the 96% pass-through requirement section), local authorities must plan to pass through at least 96% of their funding from the government to early years providers for each of the above entitlements separately, and cannot meet the pass-through requirement by combining the two separate entitlements for 2-year-olds. This pass-through requirement ensures that most of the government funding reaches providers so that they can deliver the government’s entitlement offers. Local authorities should consider changing pressures on local markets when determining their pass-through rate.

4.2 What is included in the 96% pass-through?

The 96% includes the following budget lines for each of the above entitlements separately:

  • base rate funding for all providers
  • supplements for all providers
  • lump sum funding for MNS (this applies to 3 and 4-year-olds only, please note any funding from DfE’s MNS supplementary allocation will be excluded − see below)
  • the funding paid directly to providers from the SENIF (this includes funding drawn from both the early years block and the high needs block)
  • contingency funding

For 3 and 4-year-olds, please note that the 96% is calculated with reference to the 3 and 4-year-old hourly funding rate and therefore does not take account of any MNS supplementary funding allocation a local authority receives from the government. As such, the MNS lump sum funding referred to above applies to any further funding for MNS paid from a local authority’s 3 and 4-year-old universal and additional hours allocation only.

4.3 The remaining 4% expenditure

The remaining 4% expenditure could include the following:

  • centrally retained funding (for central services or services in-kind, including special educational needs and disability (SEND) services)
  • transfer of funding to any of the other early years entitlements
  • any extra hours that local authorities choose to fund in addition to the government’s entitlement hours
  • any funding movement out of the early years block

4.4 What is not included in the pass-through?

The following DSG early years block funding streams are not included in the 96% pass-through calculation:

  • payments to MNS from DfE’s MNS supplementary funding allocation
  • DAF
  • EYPP

4.5 Monitoring compliance with the 96% pass-through requirement

As in previous years, we will monitor compliance with the 96% pass-through requirement via the early years proforma in the annual s251 planned budget returns. We may consider collecting s251 outturn data to monitor compliance with the pass-through.

4.6 Pass-through rate calculation explained

There is one formula for calculating the pass-through rate for each of the entitlements. The calculation to determine compliance is as follows:

(A − B) ÷ C is no less than 96% of D

Where:

  • ‘A’ is the total of:
    • all budget shares and allocations in respect of the entitlement stream being calculated, this includes funding for base rate, supplements, EYPP and DAF for the entitlement stream being calculated
    • contingency funding nominally allocated to the entitlement stream being calculated, out of the schools budget
    • the amount of special educational needs inclusion funding for the entitlement stream being calculated, excluding any amount of SENIF which may be centrally retained by the local authority
  • ‘B’ is the total of:
    • for the 3 and 4-year-old entitlements, the MNS supplementary funding allocation the local authority receives from the DfE, and
    • in all cases:
      • any amount relating to the EYPP in relation to the entitlement being calculated
      • any amount relating to the DAF in relation to the entitlement being calculated

To note: we have referred to EYPP and DAF in the description to be consistent with the way the pass-through calculation is described in regulations. However, you do not need to include EYPP and DAF in your actual calculation as they are not in scope for the pass-through requirement.

A local authority will be meeting the requirement if ‘(A – B) ÷ C’ is equal to or greater than 96% of D.

4.7 Example of calculation

The calculation steps for all the entitlements are the same, except for 3 and 4-year-olds. This is because, since some local authorities receive additional MNS supplementary funding for 3 and 4-year-olds, the calculation for determining the pass-through rate for 3 and 4-year-olds differs from the other entitlements. The pass-through rate is measured against the 3 and 4-year-old hourly rate only, therefore the MNS supplementary funding DfE provides to local authorities is not considered in the determination of the 96% pass-through. For simplicity, a worked example for 3 and 4-year-olds is shown below:

Calculation Line Description Amount
A 1 Anticipated budget for base rate (including funding to MNS) for 3 and 4-year-olds for universal 15 and additional 15 hours £13,650,000
A 2 Anticipated budget for MNS lump sums for 3 and 4-year-olds £700,000
A 3 Anticipated budget for supplements for 3 and 4-year-olds: deprivation (including funding to MNS) £800,000
A 4 Anticipated budget for supplements for 3 and 4-year-olds: quality (including funding to MNS) £300,000
A 5 Anticipated budget for supplements for 3 and 4-year-olds: flexibility (including funding to MNS) £200,000
A 6 Anticipated budget for supplements for 3 and 4-year-olds: rurality (including funding to MNS) £200,000
A 7 Anticipated budget for supplements for 3 and 4-year-olds: English as an additional language (EAL) (including funding to MNS) £100,000
A 8 Anticipated budget for 3 and 4-year-old SEN inclusion fund (top up grant element) £400,000
A 9 Anticipated budget for 3 and 4-year-old contingency £1,000,000
    Subtotal £17,350,000
B 10 DfE initial quantum allocation to local authority of MNS supplementary funding £98,000
C 11 Planned hours for universal 15 and additional 15 hours for 3 and 4-year-olds as reported in s251 budget early years proforma, under the ‘base rate hours’ 2,950,000 hours
  12 Equivalent average rate to providers for entitlement hours for 3 and 4-year-olds = (A – B) ÷ C = (lines 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 – 10) ÷ line 11 £5.85 per hour
D 13 Local authority’s hourly rate for 3 and 4-year-olds (as published alongside this document, or in DSG tables in future) £6.00 per hour
    Test of meeting requirement is ((A (sum of lines 1 to 9) – B (line 10)) ÷ C (line 11)) ÷ D (line 13) × 100 97.5%

In this example, since the local authority is passing on 97.5% of the EYNFF hourly rate they received from central government for 3 and 4-year-olds to their providers, the local authority will meet the policy requirement.

To be compliant, the calculated pass-through rate must be more than or equal to 96.0%. Rounding up 95.9% will not meet the requirement.

4.8 Disapplication from the 96% pass-through requirement

We do not expect that many local authorities will need to request a disapplication of the regulation which sets out the 96% pass-through requirement. However, in exceptional circumstances, DfE will consider individual requests to disapply or vary this requirement in relation to any of the early years entitlements.

In order to consider requests for a disapplication from the pass-through rate, DfE expects local authorities to present evidence that one or more of the following conditions are met:

a. Disapplication is essential to avoid a significant overall reduction in the level of specialist early years SEND services offered to providers for free, or on a subsidised basis.

Such evidence should include:

  • a description and costing of current services
  • an assessment of how these might need to be constrained were the local authority to comply with the 96% pass-through requirement, and the impact this might have
  • why it is not possible for local authorities to offer such services on a ‘buy-back’ model

b. Disapplication is essential for the local authority to meet its statutory early years duties, for example delivering the entitlement for families of 2-year-olds receiving additional support.

Such evidence should include:

  • a description and costing of meeting the statutory duties in question
  • an assessment of how these duties might need to be constrained were the local authority to comply with the 96% pass-through requirement, and the impact this might have
  • an explanation of why it is not possible to implement a more efficient operating model

For all disapplications, local authorities will also be expected to present strong evidence that, if the disapplication were to be allowed, delivery of the childcare entitlements would not be jeopardised. Such evidence will need to include:

  • the pass-through percentage the local authority has applied for and the calculation that shows its derivation
  • the impact of the proposed lower pass-through threshold (if disapplication were to be allowed) on the average funding rate paid to providers for 2025 to 2026
  • evidence that providers will be willing to deliver enough places to meet demand for the early years entitlement from which the pass-through rate would be disapplied in 2025 to 2026 at the proposed new funding rate

For all disapplications, local authorities are also expected to provide evidence of any potential impact of the proposal on protected characteristics, for the purposes of the public sector equality duty (section 149 of the Equality Act 2010).

We may validate local authorities’ evidence against other data and intelligence and may request further information from local authorities where appropriate.

Requests for disapplications for the pass-through rate for 2025 to 2026 should be submitted to DfE as soon as possible, and by 30 January 2025 at the latest. This will help to ensure local authorities receive a decision ahead of finalising their local business planning. Disapplication requests will be considered on an individual basis, though local authorities should factor into their planning how they will proceed if their disapplication request is not successful.

Local authorities who wish to submit a disapplication request should refer to the guidance for completing the disapplication forms. Local authorities should consult with their schools forum prior to submitting a disapplication request (though the final decision on whether to make a request rests with the local authority). A failure to provide sufficient information with your disapplication request, or to comply with any requests for additional information, may lead to delays and, in some cases, the request being rejected.

5. Setting a local formula

For 2025 to 2026, the majority of the existing local funding rules will be the same as in 2024 to 2025.

Local authorities must determine their funding formulae before the beginning of the financial year. Where a local authority proposes to make changes to the funding formulae it used during the previous financial year that will affect early years providers, it must first consult its schools forum, maintained schools, and early years providers. Local authorities must also seek approval from their schools forum to agree any entitlements funding they intend to retain to fund central functions. Local authorities are not permitted to amend their funding formulae after the financial year has started.

Local authorities should ensure their early years providers are sufficiently represented at schools forum meetings to cover votes on specific changes to the formula. Each forum should have at least one representative of the private, voluntary, and independent (PVI) sector among its non-school members. More information can be found in the schools forums operational and good practice guide.

Whether or not their local formulae have changed, local authorities must deduct any central expenditure by 28 February 2025, and as per the current regulations, must calculate and notify initial budgets to providers no later than 31 March 2025. Where necessary initial budgets should use an estimate of the number of hours for the financial year.

As above, for 2025 to 2026, we are introducing an expectation that local authorities should calculate and notify providers of their funding rates no later than 28 February 2025. Setting this deadline is intended to give providers more certainty to support their business planning and will better align early years and schools funding arrangements locally. From 2026 to 2027, we plan to update regulations to make this 28 February deadline a requirement.

Regulations require local authorities to review and redetermine provider budgets during the year when further information about actual hours of attendance becomes available. Local authorities are expected to obtain at least termly updates on hours of attendance. When updating provider budgets, local authorities must either use the actual total number of hours for the relevant review period, or the predicted total number of hours based on the actual hours of attendance in at least 3 different sample weeks. Local authorities must notify providers within 28 days of redetermining budgets and must inform them from when the re-determined budget takes effect.

Local authorities can redetermine provider budgets without making a disapplication request in limited circumstances only, including accounting for actual hours of attendance. If a local authority wishes to redetermine provider budgets for other reasons, they must submit a disapplication request to DfE using the digital disapplication request proforma.

5.1 Setting a local funding rate for 2-year-old entitlements and children aged 9 months up to 2 years

There are two separate 2-year-old entitlements.

Supporting children from families receiving additional support is a priority. For this reason, we require local authorities, through regulations, to ensure that the final hourly funding rate (that is the base rate, plus supplements if applicable) they pay to providers for the entitlement for families of 2-year-olds receiving additional support is at least equal to the final hourly funding rate for the 2-year-old working parent entitlement at individual provider level.

This means local authorities must ensure that no individual provider attracts a final hourly funding rate for a child on the entitlement for families of 2-year-olds receiving additional support that is lower than that provider’s rate for a child taking up the 2-year-old eligible working parent entitlement. It is permissible for local authorities to set a higher final hourly funding rate for the entitlement for families of 2-year-olds receiving additional support.

We recognise that in a small number of cases, a local authority might find that there are some providers which attract a higher final hourly funding rate than others (due to the use of supplements). So, a child taking up the entitlement for families of 2-year-olds receiving additional support in one provider may attract a slightly lower final hourly funding rate than a child taking up the eligible working parent 2-year-old entitlement in another provider within the local authority. This would be permissible. But it remains the case that the final hourly funding rate for the entitlement for families of 2-year-olds receiving additional support must be at least equal to the final hourly funding rate for the entitlement for the eligible working parents of 2-year-olds, for each individual provider within the local authority.

Local authorities will need to consider the way in which they construct their local 2-year-old formula or formulae to achieve this. Local authorities have the flexibility to determine how best to structure their approach.

See section 5.3: funding factors on setting the base rate and supplements for the 2-year-old entitlements.

For the entitlement for eligible working parents of children aged 9 months up to 2 years, local authorities can use the same formula structure as the 2-year-old eligible working parent entitlement or set a different formula. However, higher funding rates for these younger children should be reflected.

Under limited circumstances, local authorities may make a disapplication request to the Secretary of State for Education to disregard this requirement, for example if there are sufficiency issues in their area for the 2-year-old entitlement for eligible working parents.

5.2 Single funding rate for both entitlements for 3 and 4-year-olds

For 2025 to 2026, there are no changes to the way funding for the entitlements for 3 and 4-year-olds has been calculated; DfE funds local authorities on the same basis for both the universal 15 hours entitlement and the additional 15 hours entitlement for working parents. This is because the statutory framework and the quality requirements for the two entitlements are the same.

We expect local authorities to fund their providers in the same way for both sets of hours and not to distinguish between the two. This means using the same hourly base rate and same supplements for both entitlements.

5.3 Funding factors

Universal base rate

All local authorities must pay a universal hourly base rate for all their childcare providers in each of their local early years funding formulae for all the early years entitlements. The universal base rate must, in all cases, be multiplied by the number of estimated hours of attendance of children.

For 2-year-old entitlements, given that the funding rate for the entitlement for families of 2-year-olds receiving additional support needs to be equivalent to or higher than the 2-year-old eligible working parent entitlement, if local authorities choose to have separate funding formulae for each entitlement, the base rate for the entitlement for families of 2-year-olds receiving additional support formula for all providers must be at least equal to and not be less than the base rate for the 2-year-old eligible working parent formula. Local authorities are permitted to set a higher base rate in their formula for the entitlement for families of 2-year-olds receiving additional support formula if they wish.

Funding supplements

Funding supplements are amounts of funding paid to providers in addition to the universal hourly base rate to reflect local needs or policy objectives. Local authorities may apply a supplement to the base rate for any of the entitlements. When using supplements, local authorities should adhere to the following principles:

  • the use of supplements should be transparent and fair and should be open to all providers that meet the eligibility criteria
  • for the 3 and 4-year-old entitlements, local authorities should not distinguish between the universal 15 hours entitlement and the additional 15 hours for eligible working parents; any supplement should apply equally to both entitlements

For the 3 and 4-year-old entitlements, it is mandatory for local authorities to include a deprivation supplement in their local funding formula.

For the 2-year-old entitlements and the entitlement for children aged 9 months up to 2 years old, we expect local authorities to ensure funding for deprivation is reflected in their approach to funding for these entitlements, recognising the additional costs associated with supporting children from families in receipt of additional support. This could be achieved through a deprivation supplement, particularly where local authorities are using a single 2-year-old formula locally. However, this is not a mandatory requirement for the 2-year-old entitlements. This is to avoid the necessity to include a deprivation supplement within the formula for the entitlement for families of 2-year-olds receiving additional support if local authorities choose to have separate formulae for the 2-year-old entitlements, and recognising that the new eligible working parent entitlements are for a different cohort to the 3 and 4-year-old entitlements.

For the 2-year-old entitlements, if after setting their local formulae, a local authority finds there is an individual provider for whom the hourly funding rate for the entitlement for families of 2-year-olds receiving additional support is lower than the eligible working parent 2-year-old rate, and the local authority determines it is either unaffordable or undesirable to adjust their overall local formulae, they are permitted to address the issue for the affected providers only. They could do this by providing an additional amount in their formula for the entitlement for families of 2-year-olds receiving additional support, which would provide a top up to the hourly rate for children in receipt of that entitlement for the provider in question, so that the final hourly funding rate is at least equal to (or more than), that provider’s final hourly rate for 2-year-olds of eligible working parents.

This is one particular approach that local authorities could, but are not obliged to, take. Local authorities are, however, required to ensure that, through whichever approach they take, the final hourly funding rate paid to each provider in their area for the entitlement for families of 2-year-olds receiving additional support is at least equal to (or more than) that provider’s final hourly rate for eligible working parents of 2-year-olds.

For consistency with the 2-year-old eligible working parent entitlement, a deprivation supplement is not mandatory for the 9 months up to 2-year-old entitlement, given the similarity between the cohorts.

Local authorities are permitted to use other funding supplements provided they fall within the categories specified in permissible supplements section below. For all supplements, local authorities have the freedom to choose the appropriate metric for allocating funding but should be transparent about the metric chosen.

Permissible supplements

The allowable supplements are:

Deprivation

Use of the deprivation supplement is mandatory for 3 and 4-year-olds and discretionary for 2-year-olds and children aged 9 months up to 2 years.

This supplement recognises deprivation in local authorities’ areas and supports children in those areas in taking up the early years entitlements.

Rurality or sparsity

This is a discretionary supplement for all entitlements.

To enable local authorities to support providers serving rural areas less likely to benefit from economies of scale.

Flexibility

This is a discretionary supplement for all entitlements.

To enable local authorities to support providers in offering flexible provision for parents; this could, for example, be providers offering wraparound care, out-of-hours provision, or on-call type provision to support parents’ working patterns and needs.

Quality

This is a discretionary supplement for all entitlements.

To support workforce qualifications, or system leadership (supporting high quality providers leading other providers in the local area).

We encourage local authorities to consider using the quality supplement to distribute the additional funding they receive in 2025 to 2026 in respect of teachers’ pay, though we acknowledge the varied approaches that local authorities have adopted to date in distributing this funding locally.

In 2025 to 2026 we have included funding in respect of the September 2024 teachers’ pay award in the hourly rates for 3 and 4-year-olds and MNS supplementary funding. This is in addition to funding that was provided in previous years, in respect of previous teachers’ pay and pension costs.

More information about how this funding has been rolled-in to local authorities’ hourly rates in 2025 to 2026 can be found in the technical note accompanying this guide.

We continue to encourage local authorities to consider the purpose for which this funding has been provided when designing their approach to local distribution. They could continue to target the funding to take account of additional pressures that some providers might face in relation to their teaching staff.

As with all other supplements, it is for local authorities to determine the appropriate metric for allocating funding, so long as their approach is in line with the principles set out above.

Local authorities are reminded that the maintained nursery school (MNS) portion of the teachers’ pay funding has been rolled in to MNS supplementary funding, and they should avoid double-funding MNSs through this supplement.

Any system leadership supplement should be open and transparent in terms of the process for choosing the ‘leaders’, the funding arrangements, and the support to be provided.

Local authorities must not impose training requirements on providers registered with a childminder agency. Providers registered with Ofsted must not be required to attend training unless they have achieved less than ‘good’ in an Ofsted inspection report and the training has been identified in the Ofsted report [footnote 3]. This is prohibited by The Local Authority Duty to Secure Early Years Provision Free of Charge Regulations 2014 (regulation 8)(2)(a)(ii)) and The Childcare (Free of Charge for Working Parents) (England) Regulations 2022 (regulation 48(a). Further details can be found at section A4b of the early education and childcare: statutory guidance.

English as an additional language (EAL)

This is a discretionary supplement for all entitlements.

To recognise differences in attainment in the early years foundation stage between children whose first language is English and those who have EAL.

Supplements cap

In 2025 to 2026, the total planned value of funding supplements must not be more than 12% of the total value of planned formula funding to providers for the respective entitlements:

  • 9-month-old children up to 2-year-olds of eligible working parents
  • 2-year-old children of eligible working parents
  • 2-year-old children from families receiving additional support
  • 3 and 4-year-olds (universal and additional hours)

As set out in funding supplements subsection above, some local authorities may also need to include additional funding in their formula for the entitlement for families of 2-year-olds in receipt of additional support to top up certain providers to comply with the requirement that each provider’s final hourly funding rate for that entitlement is at least equal to their rate for eligible working parents of 2-year-olds. This additional funding will not be included in the calculation of the 12% cap. However, it will be included within the pass-through rate calculation for the entitlement for families of 2-year-olds receiving additional support.

As before, this cap on supplements should not be considered a target for local authorities to meet. Compliance with the 12% ‘supplement cap’ will be based on s251 budget data and calculated as shown below. Please note: the calculation methodology will be the same for each of the respective entitlements mentioned above. For simplicity, we have used the 3 and 4-year-old entitlements in the example below:

Z = (X ÷ Y) × 100

where,

X = supplements quantum for universal 15 and additional 15 hours for 3 and 4-year-olds from planned s251 budget.

Y = total base rate quantum for universal 15 and additional 15 hours for 3 and 4-year-olds + supplements quantum from planned s251 budget.

If Z is less than or equal to 12.0% then the requirement has been met (please note rounding down 12.1% will not be considered as meeting the requirement).

Therefore, a local authority planning to spend a total of £12.5 million on the 3-and-4-year-old entitlements could spend, at most, £1.5 million (12% of £12.5 million) on supplements, and at least £11m through their base rate.

6. Special educational needs inclusion fund (SENIF)

All local authorities are required to have a SENIF for all children eligible for the entitlements and who have SEN, regardless of the number of hours taken. These funds are intended to support local authorities to work with providers to recognise and support the low-level and emerging needs of individual children with SEN who are taking up the entitlements. These funds also support local authorities to undertake their responsibilities to strategically commission SEN services as required under the Children and Families Act 2014.

Eligibility

A local authority’s SENIF is for supporting children below compulsory school age with SEN and who are eligible for the entitlements. SENIF funding should be targeted at supporting children with low-level or emerging SEN.

SENIF funding is not for supporting children with SEN who are not eligible for the entitlements, and should not be used to support children with SEN in reception year at school. However, it can be used to support children with SEN who are eligible for the entitlements, are of school age, and have deferred their entry to reception.

Children not eligible for the entitlements or with more complex needs and with an education, health and care (EHC) plan continue to be eligible to receive funding via the high needs block of the DSG.

Further information on the high needs funding system can be found in the ‘High needs funding arrangements: 2025 to 2026’. As with other elements of early years funding, SENIFs should apply to children attending settings in the relevant local authority area, regardless of where they live.

Value

The value of the fund should consider the number of children with SEN in the local area, their level of need, and the overall capacity of the local childcare market to support these children. Local authorities should consult with early years providers to set the value of their local SENIF.

Section 251 data is a useful tool to compare different local authority expenditure on SENIFs. The benchmarking tool for 2023 to 2024 can be found here: early years funding benchmarking tool. The benchmarking tool for 2024 to 2025 will be published in early 2025, however, in the interim period, we have published the s251 raw data for 2024 to 2025.

Sources of funding

Local authorities should establish their SENIFs using funding from the early years block and/or the high needs block of their DSG allocation. Although local arrangements will vary, local authorities should consider the right balance to strike in drawing from these 2 blocks of funding, taking into account the particular pressures on high needs and early years budgets locally and the 96% pass-through requirement.

Allocation of funding

As part of the preparation and review of their SEND local offer of services and provision (a statutory requirement under the Children and Families Act 2014), local authorities must consult with various bodies including early years providers, parents and SEN specialists on the services and provision available to support children and young people with SEN and disabilities, and their families. As part of this, local authorities should publish details on how their SENIF will be used to support their early years SEN cohort. These details should include how providers can access funding, the eligibility criteria for the fund, the planned value of the fund at the start of the financial year, and the process for allocating the fund to providers. Local authorities should ensure that their local offer is accessible for all providers and families of eligible children.

Local authorities should pass the majority of their SENIF to providers in the form of top-up grants determined on a case-by-case basis. Local authorities can also support specialist SEN services in their local area. Funding used for these local authority-wide support services will not count towards the 96% pass-through; they will be counted within the 4% centrally retained funding.

Local authorities should endeavour to distribute funding to providers in a timely manner such that the positive impact of funding can be felt by the child as soon as possible. SENIF funding should be used to support eligible children to access the entitlements and ensure settings are inclusive and supporting individual children’s needs; funding can be used in a variety of ways to meet this policy intent, and could, for example, include training, specialist resources and funding for staffing.

Local authorities should review and understand how SENIFs are used by providers, in particular to understand how they support eligible children to access the entitlements. This could include implementing an audit process to ensure funding is delivering against local objectives.

Eligible providers

All early years providers that are eligible to receive funding for the entitlements are eligible to receive funding and support from the SENIF, to support children with SEN who are eligible for the entitlements attending their settings.

Compliance

Local authorities must record the planned value of their SENIFs in the early years proforma of the s251 budget returns.

7. Additional funding for maintained nursery schools (MNS)

Local authorities with MNS will receive supplementary funding for the 2025 to 2026 financial year for universal 3 and 4-year-old entitlement hours only.

In 2025 to 2026, the minimum hourly rate is £5.27 and the cap has been set at £10 per hour. Transitional arrangements have now come to an end.

In 2025 to 2026, local authorities’ MNS supplementary funding rates include a notional allocation to acknowledge the additional pressures that their MNSs may face in respect of increases to teachers’ pay from September 2024.

As mentioned in the universal base rate section, all providers must be paid the same hourly base rate; this also applies to MNS. However, local authorities may continue to use ‘lump sums’ to distribute additional funding to MNS for 3 and 4-year-olds which may be different for individual MNSs.

The technical note sets out how the MNS supplementary funding rate for each local authority will be calculated, including how the minimum funding floor and cap have been applied, and how the additional funding in respect of September 2024 teachers’ pay increases has been distributed.

8.  Disability access fund (DAF)

The Equality Act 2010 requires local authorities to make adjustments for disabled children where it is reasonable to do so. Local authorities must comply with the provisions of the Act in finding suitable provision for eligible disabled children.

The DAF was introduced to support disabled children’s access to the entitlements for 3 and 4-year-olds. From 2024 to 2025, DAF eligibility was extended to eligible 2-year-olds and children 9 months old to 2 years, accessing the entitlements.

DAF funds can be used, for example, to support providers in making reasonable adjustments to their settings and/or helping with building capacity, be that for the child in question or for the benefit of all children attending the setting. Settings may want to use DAF funding to pay for staff training to help meet children’s specific needs, resources and adjustments to support the individual child’s needs.

8.1 Eligibility

A child will be eligible for the DAF if:

and the child receives one of the following:

  • the universal 15 hours entitlement for 3 and 4-year-olds

or

  • the 15 hours entitlement for families of 2-year-olds receiving additional support

or

  • the 15 hours entitlement for children aged 2 years of eligible working parents

or

  • the 15 hours entitlement for children aged 9 months to 2 years of eligible working parents

The same criteria will also apply when the entitlements are extended to 30 hours from September 2025.

Please note that children do not have to take up the full 570 hours of early education to which they are entitled in order to receive the DAF. Children will be eligible where they take up any period of free entitlement and receive DLA.

Four-year-olds in primary school reception classes are not eligible for DAF funding.

8.2 Identifying eligible children

Early years providers are responsible for identifying eligible children and are encouraged to use the DfE’s parent declaration template, which is included in the model agreement.

8.3  Eligibility checking

Local authorities are responsible for checking that the DAF eligibility criteria are met. They should be satisfied that the child in question is receiving DLA and may wish to see evidence of the child’s DLA award letter. Local authorities should keep a copy of this evidence on file.

8.4  Distributing DAF to early years providers

All early years providers delivering early years entitlements to children eligible for DAF are eligible to receive DAF payments.

Local authorities must fund all settings providing a place for DAF-eligible children at the annual rate of at least £938 per child. These individual DAF payments should be distributed in their entirety to providers, and this funding should not be offset against any other funding which the local authority may ordinarily be providing for children eligible for the DAF.

If a child eligible for the DAF is splitting their free entitlement across 2 or more providers, local authorities should ask parents to nominate the main setting. Local authorities should pay the DAF for the child to that nominated main setting.

If a child receiving DAF moves from one setting to another, the new setting is not eligible to receive DAF funding for this child until the anniversary of the first payment has passed. DAF funding received by the original setting will not be recouped. However, in this situation, and where local agreement can be reached, we encourage providers to transfer relevant resources or unspent funding to ensure continued support of the eligible child in their new setting.

The DAF is payable as a lump sum and must not be pro-rated according to hours taken up.

The way that the department allocates DAF funding to local authorities may result in local authorities not spending all of their allocation on specific children’s DAF payments. Where there are any such underspends, local authorities are expected to spend these, over and above  what is paid to providers for individual DAF-eligible children, in line with the principles and aims of the fund. The department wants to encourage any local authorities who are underspending their annual DAF budgets to consider how underspends could be used to support providers meet the needs of children with SEND. For example, local authorities may want to consider using the money for training for providers or as a bridging fund to be used for children while they are waiting for their DLA application to be completed and assessed.

8.5  Timing of payments

The DAF is intended to aid access to the government-funded entitlements for children with disabilities. Therefore, when the child takes up the relevant entitlement for children aged 9 months up to 4 years, local authorities should issue DAF payments to providers as soon as possible. So, for example, if a child turns 9 months, 2, 3 or 4 in the summer term, they will be able to take up their entitlement in the autumn term and local authorities should issue the first DAF payment as quickly as possible in that term. Where children are still eligible for the DAF, providers should receive successive payments annually until the child starts school.

9.  Early years pupil premium (EYPP)

The EYPP gives providers additional funding to support children from families receiving additional support accessing an entitlement place.

For 2025 to 2026, EYPP covers all children who are accessing the entitlements and meeting the eligibility criteria detailed below.

9.1 Eligibility

A child will be eligible for EYPP if they receive one of the following:

  • the universal 15 hours entitlement for 3 and 4-year-olds

or

  • the 15 hours entitlement for families of 2-year-olds receiving additional support

or

  • the 15 hours entitlement for children aged 2 years of eligible working parents or
  • the 15 hours entitlement for children aged 9 months to 2 years of eligible working parents

The same criteria will also apply when the entitlements are extended to 30 hours from September 2025.

and they meet any of the following criteria:

If a child qualifies for EYPP under more than one set of criteria, they will only attract the funding once.

EYPP is only payable for the first 15 hours used by children taking up the eligible working parents entitlements for 3 and 4-year-olds and 2-year-olds and under. The EYPP is not payable on the additional 15 hours for these entitlements.

9.2  Identifying eligible children

Early years providers are ultimately responsible for identifying eligible children, so that local authorities can provide the appropriate funding. Providers should be encouraged to speak to parents of all children aged 9 months up to 4 years taking up one of the entitlements, to find out who is eligible for EYPP funding, especially to the parents of children who took up either of the early education entitlements for 2-year-olds as many of these children will attract EYPP when they turn 3. Providers are encouraged to use DfE’s parent declaration template, which is included in the model agreement.

It is the responsibility of the local authority’s virtual school head to identify children eligible for EYPP who are currently in local authority care.

9.3 Eligibility checking

Local authorities should check EYPP eligibility when a parent or provider tells them the child may be eligible. An EYPP eligibility check should not be made more than a term in advance of the child taking up their free entitlement in case the family’s circumstances change. Once a child becomes eligible for EYPP, that child will remain eligible while they are taking up the early years entitlements.

The department’s eligibility checking system (ECS) provides a mechanism for local authorities to verify whether children meet the eligibility criteria.

Local authorities can only share the outcome of eligibility checks with:

  • the child’s parent(s) or legal carer(s), and
  • the provider, or providers, of the child’s early years education

Once the child enters reception, they will no longer be eligible for the EYPP, but may become eligible for the pupil premium. Eligibility for EYPP does not lead automatically to eligibility for pupil premium when the child starts school.

Local authorities should follow a different process for checking the eligibility of children who:

  • have been adopted from local authority care
  • have left care through a special guardianship order
  • have left care through a child arrangements order

Local authorities cannot check such eligibility through the ECS. Instead, the parents, adoptive parents or guardians of these children should show authorities evidence of the court order that proves that the child was in local authority care in either England or Wales.

9.4  Assessing eligibility for parents in receipt of universal credit

A parent who is entitled to universal credit will be subject to an earned income threshold detailed in the free school lunches and milk, and school and early years finance (amendments relating to universal credit) (England) regulations 2018. Eligibility must be checked through an assessment of the parent’s net earned income across up to 3 of the universal credit assessment periods immediately preceding the date of the request for the EYPP. Checking earnings over up to 3 universal credit assessment periods will consider families with fluctuating earnings.

The date of EYPP request is the date on which the parent / guardian submits their information (name, national insurance number, date of birth) and gives permission for their eligibility to be checked. The local authority should ensure that the date of request is recorded, and that eligibility is checked as soon as possible after the date of request.

The date of request provides the reference point from which the parent’s most recent 3 universal credit assessment periods must be determined. Therefore, when carrying out a manual check using evidence provided by the parent, the 3 relevant universal credit assessment periods would be the 3 complete assessment periods which immediately preceded the date of request.

Eligibility is assessed as follows:

  • if the parent’s net earned income in their first assessment period (period 1) does not exceed threshold 1, (£616.67) detailed in the free school lunches and milk, and school and early years finance (amendments relating to universal credit) (England) regulations 2018 the child is eligible.
  • if the parent’s net earned income exceeds threshold 1, then the sum of the parent’s net earned income in the assessment period immediately preceding period 1 (period 2) and period 1 is compared to threshold 2 (£1,233.34). If that total net earned income does not exceed threshold 2, the child is eligible.
  • if the parent’s net earned income exceeds threshold 2, then the sum of parent’s net earned income in the assessment period immediately preceding period 2 (period 3) and period 1 and period 2 is compared to threshold 3 (£1,850). If that total net earned income does not exceed threshold 3, the child is eligible.

Please note that:

  • period 2 or 3 cannot be assessed on their own independently of period 1. Likewise, period 3 cannot be assessed with period 1 unless period 2 is included
  • where the parent has completed fewer than 3 assessment periods, the steps above will apply up to, but not including, the step when there is no complete assessment period preceding period 1 or 2

This process is summarised below:

Table 2: eligibility assessment checks

Check 1 is earned income in period 1 less than threshold 1 (£616.67) if yes, eligible. If no proceed to check 2 (if there is a period 2)
Check 2 is earned income in period 1 + earned income in period 2 less than threshold 2 (£1,233.34) if yes, eligible. If no proceed to check 3 (if there is a period 3)
Check 3 is earned income in period 1 + earned income in period 2 + earned income in period 3 less than £1,850) if yes, eligible. If no, not eligible

9.5  Paying EYPP to early years providers

All early years providers who provide early years entitlements provision to children eligible for EYPP are eligible to receive the EYPP.

Local authorities must fund early years providers in their area at a rate of at least £1 per hour per eligible child up to a maximum of 570 hours (a maximum of at least £570 per year). Where a 3 and 4-year-old child, a 2-year-old child, or a child aged from 9 months to 2-years-old is also eligible for the additional 15 hours entitlement for eligible working parents, EYPP is paid on the first 15 hours only, up to a total of 570 hours in the year. For children who are eligible for EYPP by virtue of being looked after by a local authority, the local authority must fund the early years provider at a flat rate of at least £1 multiplied by 570 hours (at least £570 per year).

A local authority must use the same hourly rate, which must be at least £1, for all EYPP payments made in respect of children in its area.

As with the entitlements for children aged 9 months up to 4 years, EYPP becomes payable from the beginning of the term after an eligible child turns 9 months old, or the beginning of the term following their second or third birthday which is detailed in paragraph A1.7 of the early education and childcare: statutory guidance.

We fund local authorities for the funded places taken-up in the local authority in which a setting is based. Therefore, in cases where a child who lives in one local authority attends a setting in another local authority, funding the EYPP for the child is the responsibility of the local authority in which the setting is based.

Likewise, for children in local authority care, it is the responsibility of the local authority in which the setting is based to fund the EYPP.

Where looked-after children are taking up the entitlements, it is the responsibility of virtual school heads to manage the process of accessing EYPP funding for those children. However, in those circumstances, the payment of EYPP is made to settings by the local authority. You can read the guidance on  managing EYPP for children in local authority care. That guidance will be updated to reflect the above clarification in due course.

10.  Additional and further information

10.1  Cross-local authority funding

We fund local authorities for the funded places taken up in the local authority in which a setting is based. Therefore, in cases where a child who lives in one local authority attends a setting in another local authority, funding for the child is the responsibility of the local authority in which the setting is based. This applies to all the entitlement funding streams.

10.2  Payment of funding to childminders and childminder agencies

Local authorities should discuss and agree locally with childminder agencies and each childminder registered with each agency, whether funding (early years entitlements, EYPP and DAF) is paid direct to the childminder or is passed on to the childminder through the agency.

Local authorities should also ensure that none of the funding from the DSG, EYPP or DAF, paid to childminders or childcare providers registered with an agency to deliver free places, is retained by the agency.

For any questions relating to this guide, please contact us via email at [email protected].

  1. A 15-hour entitlement refers to an entitlement of 570 hours per year taken over a minimum of 38 weeks. ↩

  2. A 30-hour entitlement refers to an entitlement of 1,140 hours per year taken over a minimum of 38 weeks. ↩

  3. From September 2024, Ofsted stopped issuing an overall effectiveness judgment on school inspections. However, overall effectiveness judgements from reports published before then remain valid until the provider is next inspected. ↩

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