Guidance

High needs funding: due diligence process for special post-16 institutions for academic year 2026 to 2027

Updated 6 November 2025

Applies to England

Introduction

Local authorities may place young people with special educational needs (SEN) and disabilities (SEND) in special post-16 institutions where they have complex needs. These placements will generally follow a statutory education, health and care (EHC) assessment and be accompanied by a statutory EHC plan (made under the Children and Families Act 2014).

Placements can be funded solely by the local authority (LA) from their high needs budget. Special post-16 institutions (SPI), as defined below, can also receive some of their funding directly from the Department for Education (DfE).

SPIs may choose to bring themselves under the same statutory duties relating to EHC plans as general further education (FE) colleges by applying to join the Secretary of State for Education’s approved section 41 list. Eligibility to join the section 41 list is considered through a separate process.

This publication provides information for SPIs on the requirements and process they must follow to be considered for DfE funding for high needss students for the first time in 2026 to 2027.

In Part 3 of the Children and Families Act 2014, which provides the legal framework for the provision of education to students with SEND, SPIs are defined in section 83 as a post-16 institution that is specially organised to make special educational provision for students with special educational needs.

These requirements are that the institution:

• is a post-16 institution that is specially organised to make special educational provision for students with special educational needs
• is not a general FE college or in receipt of funding from DfE as an independent learning provider
• has been included within their provider LA 2026 to 2027 high needs place change notification workbook and has been, or will be, named in Section I of an EHC plan for 10 or more places - the provider LA means the LA in whose area the SPI is located
• has actively traded for a minimum of 3 months and is able to supply management accounts for that period - for an SPI that has actively traded for a minimum of 3 months but not produced its first set of financial statements, it must supply its management accounts detailing actual trade to date and be supplemented with forecast information to equal a minimum of 12 months of financial information, the Stage 2 – financial health assessment section contains further detail

SPIs that meet these requirements will then be subject to DfE’s due diligence process, which will determine eligibility for direct funding.

There are 3 stages to the due diligence process:

• stage 1 – legal status and background information, and LA confirmation of placements and reason for seeking direct DfE funding for SPIs, including why provision is not available elsewhere if the SPI is new
• stage 2 – financial health assessment
• stage 3 – quality of provision

Timescales

This due diligence process must be completed by 31 March 2026.

At each stage of the process DfE will acknowledge receipt of information supplied. Once complete information has been received for each stage, DfE will review and respond with feedback where required. Where relevant this will include details of the requirements for progression to the next stage.

All stages must be successfully completed before DfE will make an offer to enter into a funding agreement with an SPI on behalf of the Secretary of State for Education. Failure to fully respond to questions posed during the process, or supply requested evidence or information may result in delays or failure to meet the due diligence required.

SPI’s will be required to bear all their costs associated with completing the process.

High needs funding due diligence timeline

Date	Milestone
5 December 2025	Local authorities must submit the High Needs Place Change Notification Return including new SPIs
December 2025 to March 2026	We will contact eligible SPIs to begin the Due Diligence Process This includes:
-	Stage 1: Legal status, background and LA confirmation
-	Stage 2: Financial health assessment
-	Stage 3: Quality of provision
31 March 2026	All due diligence stages must be completed.
April to August 2026	DfE reviews submissions and issues funding agreements to successful SPIs.
September 2026	Start of the 2026 to 2027 academic year with funding in place for approved SPIs.

Definitions

For funding purposes and for this guidance, a high needs student is defined as:

• a young person aged 16 to 18 who requires special educational provision costing over £6,000 per annum
• a young person aged 19 to 25 subject to an EHC plan who requires additional special educational provision support costing over £6,000 per annum

High needs funding for 16 to 25 year olds consists of both place funding (sometimes known as elements 1 and 2), which is provided to the SPI directly by DfE, and top-up funding (element 3), which is provided to the SPI by the commissioning LA. In all instances, element 3 must be agreed between the LA and the SPI. If the LA does not agree to pay top-up funding for a student, then they are not counted as having high needs for funding purposes. High needs funding arrangements: 2025 to 2026 contains more information.

DfE funding allocations

To be eligible for consideration for DfE grant funding in the 2026 to 2027 academic year, new SPIs must have been included within the high needs place change notification return made by the LA in which the SPI’s main premises are situated (the provider LA) to DfE. If a different LA requires places, it should liaise with the provider LA to ensure that those places are recorded on the provider LA’s return.

The deadline for return of the place change notification is 5 December 2025.

The provider LA should only include on their return SPIs that have not been funded directly by DfE in the previous financial year, and that they and/or other LAs have identified in EHC plans as suitable for 2026 to 2027 placements in respect of at least 10 students. SPIs with fewer than 10 high needs students placed by LAs can receive all their funding from the LAs.

Following the closing date for return of the place change workbook DfE will contact eligible SPIs to begin the due diligence process, which must be completed by 31 March 2026 for consideration for DfE funding for the 2026 to 2027 academic year.

In addition to the high needs funding operational guidance, SPIs should refer to the Student Eligibility guidance for more general student eligibility criteria, information on funding rates and formula, and other DfE supporting documents. Where applicable, all SPIs receiving funding direct from DfE will also be required to administer the distribution of Student Support funds, including 16 to 19 Bursaries.

For data submission requirements, SPIs should refer to the guidance on submitting Individualised Learner Record (ILR) returns. ILR submissions in accordance with these requirements are mandatory for all DfE funded SPIs and there must be systems in place to enable ILR submissions to be made.

Requirements

All DfE funded SPIs are required to be compliant with all clauses of the funding agreement between DfE and the SPI. Funding agreement requirements include assurance on the SPIs financial health, use of funds, quality of the education and training provision, safeguarding (including keeping children safe in education (KCSIE)) and student outcomes.

Applicants are advised to read the current DfE education and skills agreements and accountability agreements: 2025 to 2026 (specialist post-16 institutions) in Annex 1 to assure themselves that they will be able to meet DfE’s requirements. The DfE funding agreement is updated on an annual basis, and clauses may be changed or added each year.

There may be other statutory requirements that SPIs providing services to young people must comply with. It is the responsibility of SPIs to ensure that they are compliant with all relevant legal requirements. DfE accepts no liability in respect of any failure by an SPI in the event of non-compliance with such legal requirements.

Any SPI that successfully completes all stages of the due diligence process will be considered for an DfE academic year 2026 to 2027 funding agreement.

A high needs student study programme

SPIs educate young people with complex special educational needs. The majority of young people placed in an SPI will receive high needs top-up funding, and we would normally expect them to have an EHC plan.

The EHC plan will note the young person’s long-term aspirations, identify their special educational needs (with any relevant health and/or care needs), set out measurable outcomes (including outcomes to prepare the young person for adult life), and specify special educational, health and care provision.

We expect the LA and an SPI to work together to agree a suitable study programme for the young person, which must be tailored to their individual aspirations and support needs. Information on the latest core aims study programmes can be found on GOV.UK. The English and maths condition of funding applies. Further information on this condition of funding can be found on GOV.UK.

More information about preparing for adulthood is in Chapter 8 of the SEND Code of Practice and at the Preparing for Adulthood website.

Most young people with SEN, including those with complex needs, are capable of sustainable paid employment with the right preparation and support. A supported internship is one type of study programme specifically aimed at young people aged 16 to 24 who have an EHC plan, who want to move into employment and need extra support to do so. Published supported internships advice is available on GOV.UK.

Local authority funding

The LA and SPI must agree a support package to enable the young person to participate effectively in the study programme.

The first £6,000 per annum of the costs of the support package will be met through the funding from DfE (although LAs bear most of these costs indirectly through the operation of the national funding formula through which their allocations of high needs funding are calculated).

Any additional costs of support more than the £6,000 per annum directly funded by DfE will be met through top-up funding from the commissioning LA, including contributions from health and social services where appropriate.

LAs will need to secure agreement on how costs are to be shared between the relevant budget holders, those both within, and outside of the LA (such as, health), noting that LAs’ Dedicated Schools Grant, which is the main source of funding for their high needs budgets, may only be used to fund educational or training provision (including ‘deemed educational’ provision).

Further information can be found in annex 6 of the high needs funding operational guide.

Stage 1: legal status and background information

The SPI is required to complete Annex 2 to evidence:

• legal status – information as to the SPI and the legal owner of the SPI, for example whether the legal owner is an individual or company
• information relating to the student cohort and provision (either to be commissioned or already commissioned)
• confirmation of agreement to abide by the terms and conditions of the DfE education and skills agreements and accountability agreements (specialist post-16 institutions) in annex 1 or any future terms and conditions as amended by DfE from time to time
• contact details to be used by DfE to provide an update on the outcome of each of the stages of the process
• self-assessment of provision where available

The commissioning LA will be contacted by DfE at this stage and will be asked to complete annex 3 to evidence the following information:

• confirmation on the number of students that have been commissioned at the SPI and how many of these students hold an EHC plan
• a statement to evidence their rationale for placing students at the SPI, for example, if this is filling a gap in existing provision. In the case of new SPIs, LAs may be asked to explain why existing post-16 providers are unable to offer the required provision
• details on the amount of top-up funding per student they have agreed to allocate to the SPI, and the number of students within the total student number they expect to be assessed as having high needs

Stage 2: financial health assessment

Financial health of SPIs is assessed using the DfE’s financial health assessment methodology. The formula-based assessment categorises an institution’s financial health as either exempt, outstanding, good, satisfactory, or inadequate. These categories are based on a scoring of 3 ratios: solvency (current ratio); profitability (profit after tax as a percentage of turnover. Depreciation and amortisation are added back to profit after tax and dividends are subtracted); and gearing (total debt as a percentage of reserves and debt).

Applicants that have produced formal financial statements must provide them to DfE in support of their application. These must be the latest full financial statements (not abbreviated, not filleted, nor accounts for a micro entity), and audited, if appropriate. If full financial statements are not required for Companies House filing, organisations must still submit their full financial statements to us.

All applicants must have actively traded for a minimum of 6 months, actively trading is defined in financial health guidance which can be found on GOV.UK. This guidance contains other information related to financial health assessments; you should use this guidance when completing your application.

For an SPI that has actively traded for a minimum of 6 months but not produced its first set of financial statements, it must supply its management accounts detailing actual trade to date and be supplemented with forecast information to equal a minimum of 12 months of financial information. As a minimum this information must consist of:

• a profit and loss account covering a minimum 12 month period, from the commencement of trading
• an end of period forecast balance sheet
• a minimum 12 month rolling cash flow statement covering the same period as the profit and loss account and the balance sheet
• detailed narrative supporting assumptions made for both management accounts and forecast information

Management accounts and forecast information cannot be submitted in place of financial statements that are available. Any financial health grade awarded from the submission of management accounts will only remain valid until the first set of financial statements become available.

SPIs whose financial health is assessed as being inadequate or that have omitted to provide the financial information required will fail the application process and will not be offered an DfE funding agreement. If an SPI successfully completes the process, a recommended maximum DfE funding limit may be applied. This funding restriction would be for DfE funding and not inclusive of LA element 3 top-up funding or any other funding the SPI receives.

SPIs which do not have the necessary financial expertise themselves are advised to seek professional financial advice to ensure that the correct financial information is submitted. If the information submitted is incomplete or incorrect, the SPI will fail at that stage. There will be no opportunity to re-submit amended or additional financial information.

DfE reserves the right to carry out further financial checks throughout the due diligence process if more up to date information becomes available. The DfE also reserves the right to undertake further financial checks if you are successful with your application.

Stage 3: quality of provision

SPIs are required to demonstrate the quality of their provision by submitting evidence:

• of the latest Ofsted inspection report (if available)
• of the latest Care Quality Commission (CQC) inspection (if available)
• of the study programmes available, including information about supported internships and other study programmes focused on preparation for adult life
• that the staff are suitably qualified to undertake the role for which they are employed
• their plans for ensuring that the provision will be distinctively post-16 in nature, with facilities appropriate for the age group

An SPI will not secure a DfE funding agreement if Ofsted grades are inadequate overall or in part, or if provider-level judgements show ‘urgent improvement’ in leadership, governance or inclusion, or ‘unmet’ safeguarding.

An SPI that is not compliant with CQC standards will be unsuccessful.

Where an SPI is newly established and has not yet been the subject of inspection by either Ofsted or CQC (see below) and is otherwise successful in securing an DfE funding agreement, it will be inspected within 2 years of the DfE funding agreement being in place. The outcome of any such inspection may affect the maximum value of the funding agreement.

Site visit

DfE will request a DfE external adviser to undertake a visit to the planned delivery site, as part of stage 3 of the process. This visit will focus on the quality and costs of provision, the proposed curriculum and study programmes, internal policies in place, qualifications and experience of management and teaching staff and governance arrangements. By commencing the due diligence process, the owners of the SPI indicate their consent to allowing such an adviser access to the SPI premises, staff and existing students to comply with the requirements of the due diligence process.

The main commissioning LA will be informed of the visit and will be asked to send a representative to attend the site visit. A representative from the DfE Place-Based Team may also attend. The external adviser will seek information from the representative about the number of students being placed at the SPI and the rationale behind the commissioning decisions. In the case of a new SPI, the information requested may include the reasons why the LA is not able to use existing post-16 provision.

Outcome

An SPI will not receive funding directly from DfE if there is insufficient evidence for the following:

• one or more LAs are commissioning, or planning to commission, 10 or more high needs placements for students who are subject to an EHC plan, at the SPI in the academic year 2026 to 2027
• staff are suitably qualified to undertake the role for which they are employed
• the SPI has at least a satisfactory level of financial health

The final decision to issue a funding agreement will be taken by officials in DfE on behalf of the Secretary of State for Education. The SPI will be informed of the decision in writing including, where successful, any maximum DfE funding limit. SPIs not considered suitable for funding by DfE will be provided with feedback.

Receipt of funds in one academic year is not a guarantee that DfE funding will be allocated in subsequent years. This will be dependent on several factors, including but not limited to individual LA commissioning decisions, confirmation that the SPI can demonstrate it is fit for continued funding by remaining above the thresholds expected for quality, finance, departmental policy and available DfE budget.

DfE contact details

Queries and documentation related to due diligence should be sent to hns.duediligence@education.gov.uk.