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Understanding childcare funding in 2023

A guide for childcare providers and their parents
16 min of reading
22 June 2023
Childcare funding in 2023 - article cover

Understanding the complexities and requirements behind childcare funding is a tricky one for childcare providers and parents. However, with recent 2023 funding changes, it is now more important than ever to have a firm grasp of the who, what, where and when of childcare funding. So, let’s explore these changes and how they will impact your nursery setting.

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    Who are Blossom?

    Blossom Educational are one of the UK’s leading nursery software companies, we are nursery owners and practitioners ourselves and know the challenges and barriers first hand. Blossom’s software helps owners and managers to run a profitable and outstanding childcare provision. Parent communication is one of our priorities, our award-winning Parent App encourages parents to engage effectively with every step of their child’s educational journey. And we strive to provide top-industry content to help you with your EYFS journey, whatever stage you’re in.

    Understanding childcare funding in the UK

    The learning and development opportunities associated with the early years are invaluable. Children experience many of their ‘firsts’ whilst at nursery: friends, words, steps, and sensory experiences- to name a few. Childcare is understandably a huge priority nationally for child development. When children are in nursery it also frees up parents to be able to work, if able to, further boosting England’s economy. A win-win.

    But where does nursery funding come from? Is payment solely down to the parents? Several schemes help parents to pay for their child’s nursery experience, let’s explore your options.

    What are the types of childcare funding in England?

    The most common types of childcare funding in England are listed below. The 2023 funding changes impact tax-free childcare along with how childcare vouchers are used- we explore this further on.

    Understanding childcare funding in 2023 - Infographic

    What is tax-free childcare funding?

    Tax-free childcare is used to help parents with the cost of childcare for children up to the age of 11 years old. It is used to pay for approved childcare providers such as childminders, nurseries, after-school clubs and play schemes. For a parent to choose your nursery and use their tax-free childcare, your setting must be signed up for the scheme.

    Parents can get up to £500 every 3 months (up to £2000 per year) for each child to go towards childcare costs. The payments double if the child has a disability (£4000 per year, per child). Parents will set up an online childcare account once they have checked if they are tax-free childcare eligible. For every £8 they pay into the childcare account, the government will pay £2.

    How are childcare vouchers used?

    The use of childcare vouchers was a DfE scheme that was closed to new applicants in 2018. It is impacted by the changes to childcare funding. A scheme to allow parents to pay for childcare from their pre-tax income. Meaning parents sacrifice a portion of their salary for their employer to pay in the form of childcare vouchers. The parent won’t pay any tax or national insurance on the value of these vouchers.

    Universal credit and childcare funding

    Universal credit is a government benefit scheme that supports parents on low incomes or who may be out of work. Universal credit funding for childcare can support several children up to the age of 16. Parents will be entitled to an extra child amount for any child born before 6th April 2017. However, unless there are special circumstances, a third or following child born after 6th April 2017 will not meet additional payment requirements.


    You may find it useful to share a benefits calculator with your nursery setting’s parents to support them with the funding they may be able to receive.

    With universal credit, your setting’s parents may be able to get financial support for up to 85% of childcare costs. This breaks down into a maximum per month:

    Previously, universal credit childcare funding was paid in arrears. But with the new changes, parents can receive childcare payments upfront. Once the payment is in the tax-free childcare account, the parents can pay the nursery provider.

    It can take up to 24 hours for payments to show in the childcare account when paid from the parent’s own account. A further 48 working hours can be taken to move the money from the childcare account to the early years provider’s account. Don’t forget, bank holidays can impact this payment schedule too!

    What is free early education childcare funding?

    Free early education childcare funding provides financial support for families to help with the cost of childcare. The amount of funded childcare hours a child gets depends on age, circumstance, and family income.

    Free nursery places for two-year-olds

    There are 15 hours of free childcare available for parents who meet the eligibility criteria. The following are examples of criteria parents must meet to be able to utilise the 15 hours of free childcare for their two-year-old:

    15 hours of free childcare for three-and-four-year-olds

    Known as the universal entitlement, all children between the ages of 3 and 4 (until they begin reception class in primary school) are able to receive 570 hours of free childcare over one year. This is spread out between 38-52 weeks per year (commonly taken as 15 hours per week).

    30 hours of free childcare for three-and-four-year-olds

    The recently introduced extended entitlement for childcare funding aims to reduce barriers for parents returning to work. By supporting parents with the biggest expansion of the funding scheme the childcare sector has seen, it hopes to keep the economy growing.

    Currently, parents who work more than 16 hours per week and earn less than £100,000 are entitled to 30 hours of free childcare per week for children aged three or four. This scheme will be expanded so that working parents (with the same above criteria) of children over the age of nine months can access the 30 hours of free childcare per week.

    Additional childcare funding available in 2023

    There are additional funding entitlements nurseries should be aware of. They can be specific to your location or staff force needs.

    Understanding childcare funding in 2023 - Infographic

    What is the Early Years Pupil Premium?

    The Early Years Pupil Premium (EYPP) is extra funding that is given to early years providers from the local authority to further support disadvantaged children between the ages of three and four years old. For the 2023-2024 financial year, childcare settings will receive 62p per hour per eligible pupil for up to 570 hours. This works out to an additional £353 per pupil per year.

    Early years providers are responsible for letting the local authority know which children in your setting are eligible for EYPP. This relies on excellent communication and relationships with your parents, as they will need to share if they took up the early education entitlement for two-year-olds (the eligibility criteria are very similar).


    Blossom’s Parent App helps smooth out all questions about funding, and more, between nurseries and parents with its easy two-way communication feature.

    What is the SEN Inclusion Fund (SENIF) in EYFS?

    Your local authority should use these funds to help address the needs of individuals with SEND. The fund is aimed at those with lower level or emerging SEND. The SENIF is to be used as top-up grants on a case-by-case basis.

    What is the Disability Access Fund (DAF) for EYFS?

    Specifically designed for children with disabilities, this fund helps three and four-year-olds to access childcare entitlements. As a childcare provider, you will receive at least £800 per child annually to help make reasonable adjustments to your setting for their benefit. Share the eligibility criteria with your parents as they may not be aware if they are eligible or not. Their child must be between the ages of three and four, receive Disability Living Allowance (DLA) and get the universal 15 hours entitlement.

    How do parents at university pay for childcare spaces?

    If the parent is at college, then the Department of Work and Pensions may pay for their child’s fees at a nursery. But again, there are certain criteria that must be met. This includes that they must attend their classes 95% of the time. Also, the entire fee may not be covered by this type of funding, commonly only 80-90% of the fees are paid and the remaining unpaid amount must come directly from the parent’s pocket. Remember, this funding gets paid directly to the parents, instead of your setting.

    How to get parents’ employers involved

    Should these funding routes prove insufficient for your parents, why not encourage them to talk with their employer about funding options. If they have secured vouchers before 2018, then that can continue with no issue. But another option may be to have parents’ employers make direct payments to your setting.

    It’s not uncommon that certain companies have arranged deals with nurseries before. As by securing a deal with a company your childcare business can increase occupancy while your parents employed by them are given more childcare financial relief. You can even take it a step further and negotiate to open a branch of your nursery at the company’s premises itself.

    Changes to childcare funding 2023-2024

    By 2028, the government expects to spend an excess of £8bn a year on free childcare hours and early education. We have summarised the changes to the childcare funding for EYFS for 2023-2024 below:

    Understanding childcare funding in 2023 - Infographic

    How will nurseries manage childcare funding changes?

    In short, with difficulty! The DfE has explained that the hourly rate paid to childcare providers will be increased. But many nursery managers and owners are concerned about how this will help the growing recruitment and retention crisis in the early years.

    The ratio of nursery practitioners to children is currently 1:4. This will be altered to allow a 1:5 ratio, making space for additional children in each room. There are dangers of increasing workload to an already busy role for nursery practitioners.

    How to help parents navigate childcare funding applications 2023

    Navigating nursery funding applications can be challenging for even the most seasoned parent. Your parents may or may not be aware of all the benefits that they are actually entitled to. Therefore, it’s worth hosting a social session to chat about all options that are available to them. Having this session over a cup of tea with other parents is a good way to start the conversation and in a social, less intimidating way. It’s also a great opportunity for parents to connect with each other on their personal experiences.

    Help parents to find out if they are eligible for free childcare

    Parents may need support to determine what types of childcare they can use their funding for, especially those with multiple children across EYFS and primary school. Host a funding workshop for prospective and established parents to check eligibility for funding as well as additional supplement funding such as EYPP.

    When should parents apply for 30 hours of free childcare?

    Parents can apply for the 30 free hours of childcare (for three-and-four-year-olds) from when their child is 2 years and 36 weeks old.

    Understanding childcare funding in 2023 - Infographic

    How can parents apply for government free childcare?

    If your parents already receive tax credits or other benefits, getting 30 hours of free childcare may affect the amount they can claim. Encourage your parents to look at the childcare calculator tool provided by the DfE to help to work out what the best type of support will be for them.

    Parents will apply to see if they can receive free childcare funding online. You may have some families who might require technical assistance or help with the literacy demands of the applications. If your setting is in an area of high deprivation or high English Additional Language (EAL) population, setting up workshops with translators available may be a beneficial route to explore.

    The online process for 30 hours of free childcare and tax-free childcare are the same application. Parents will find out if they are able to receive both during one application.

    If they are eligible for the 30 hours, they will be given a childcare account (this is where the payment to the provider will come from). They will also get a code that will give them access to the 30 hours funding. They will be asked to give the code to yourselves (as the childcare provider) along with their National Insurance number and child’s date of birth.

    Top tips for nurseries to stay up to date with childcare funding changes

    Staying informed about EYFS funding changes

    There is a lot of information surrounding EYFS funding changes, not all are easily digestible! Stay informed about important funding changes by subscribing to a trusted provider’s monthly newsletter or Blossom’s blog series as we release top-industry articles several times a month.

    Communicate with parents regularly

    Your parents will regularly communicate with your nursery team via your Blossom Parent App. Keep them up to date with any changes and direct them to services that can assist further with applications and payment questions (like the childcare services helpline on 0300 123 4097).

    Understanding childcare funding in 2023 - Parent App

    Track nursery funding

    One of the most common financial mistakes nursery owners make is not tracking those children eligible for funding correctly. Blossom allows nursery managers and owners to highlight pupils who are eligible for additional funding, tracking if payments need to be chased up as well!

    Helping parents with post-EYFS funding

    Going to ‘big school’ can be more of an adjustment for the parents than the children sometimes. Therefore, understandably so, government funding for childcare may be at the top of parents’ concerns. Some of their funding options are going to change. Some may not. For example, their children would age out of the universal funding hours, but the Tax-Free Childcare, applies until 1 September after the child’s 11th birthday (or while they’re still under 17 if they have a disability).

    Funding for children with SEN and SEND can be provided up until their child is under 25, with termly reviews conducted by SEN Inclusion Fund. Therefore it is worth discussing continued funding options with your parents as this maintains your good relationship with them, for word of mouth marketing purposes, as well as if they should ever have more children to send to your setting!

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