Funded Hours and Early Years Funding for Nurseries
Written and reviewed by the Childcare Accountants editorial team. Last reviewed 29 July 2026.
The funded-hours expansion is the biggest change to nursery finances in years. Between 2024 and 2025 the government-funded entitlement in England was extended dramatically, and it has reshaped where a nursery's income comes from and how its cash flow works.
This is what changed, and, more importantly for a nursery owner, what it does to the numbers. This is England: Scotland and Wales run their own funded-childcare systems.
What Changed, and When
The entitlement was expanded in phases: 15 hours for two-year-olds of working parents from April 2024, 15 hours from nine months from September 2024, and 30 hours from nine months to school age from 1 September 2025. Eligibility runs on each working parent earning at least £9,518 a year and under £100,000.
The hours are normally used over 38 weeks of the year in term time, or stretched over more weeks at fewer hours. For a nursery that means a large and growing share of places are now funded rather than paid privately.
What It Does to a Nursery's Income
This is the part that matters for the accounts. Funded income arrives at the council's funding rate, which for many settings does not cover the actual cost of the place, so a nursery's margin now depends heavily on the mix of funded and private hours and on how the rate compares to costs.
It also changes cash flow: funding is paid by the local authority on its own schedule and headcount dates, not fee by fee, so the timing of income shifts. Understanding that mix and timing is central to running a nursery that stays solvent, not just compliant.
Charges Alongside Funded Hours
Funded hours are meant to be free at the point of use, but settings can charge for extras like meals, nappies, trips and consumables, and for additional hours beyond the entitlement, within the rules. Getting those charges structured correctly, so they are allowed and properly accounted for, protects both the parent relationship and the nursery's income.
How those charges interact with the VAT position and the accounts is exactly the kind of thing a childcare-specialist accountant handles and a generalist may miss.
Getting the Numbers Right
The nurseries that come through the expansion well are the ones that know their real cost per place, their funded-to-private mix, and their cash-flow timing, and price and plan around them. That is management-accounts work, not just a year-end return.
We build that picture for nursery clients as part of the nursery service, so the funding change is something you manage rather than something that quietly erodes your margin. To get a handle on your numbers, tell us about your setting.