The government says its plans to exempt for-profit higher education providers from VAT are developing, despite a Budget announcement postponing the proposals because of ¡°significant concerns¡±.

For-profit training providers - big players in the market include firms such as A4e - are thought to have argued that the exemption should not stop at the degree level, prompting an outcry from further education colleges and leading the coalition to promise a fresh consultation on the issue.

The Treasury¡¯s plans, first outlined in the 2012 Budget for introduction by 2013-14, would have given commercial providers VAT breaks to put them on a ¡°level playing field¡± with universities, which are exempt from charging the tax on tuition fees.

BPP University College, the UK¡¯s leading for-profit provider, is already VAT-exempt after adopting a non-profit corporate form. However, this means its profits cannot routinely be distributed to its owner, Apollo Global. BPP¡¯s 2011 accounts state that ¡°due to statutory restrictions¡­retained earnings of ?23,974,000 (2010 ?21,119,000) are not currently distributable¡±.

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If the law were changed, for-profit providers could potentially benefit from the VAT exemption while also giving owners access to their profits.

An HM Revenue & Customs document setting out the detail of tax policy announcements in the Budget says that a consultation on the VAT plans, which closed in December, ¡°identified a number of significant issues and concerns¡±.

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It adds that the government ¡°is seeking to develop alternative options which will also cover possible changes to the exemption for further education¡± and will ¡°consult again on this matter¡± later this year.

A BPP spokeswoman said the government ¡°is right to take further time to consult on the proposals¡±, adding: ¡°The status quo suits BPP¡­we had no plans to change structures due to the proposed legislation.¡±

Sally Hunt, the University and College Union¡¯s general secretary, said: ¡°Any tax breaks, on top of [for-profits¡¯] ability to raise capital from the markets, could lead to established universities being undercut by for- profits delivering only courses likely to make them money.¡±

john.morgan@tsleducation.com