HMRC will not proceed with VAT exemption for commercial higher education providers

HMRC published responses to the consultation on two proposals on extending exemption, but said that "there was no overwhelming support for either of the options put forward".

"Consideration needs to be given to alternative options to address the concerns raised and further work is needed before any changes can be made to the VAT legislation," said HMRC's response. HMRC said it will work with the Department for Business, Innovation and Skills (BIS) to consider the issues raised by the consultation.

HMRC launched the consultation last September outlining two options for extending the VAT exemption and seeking views on whether the proposals would help to contribute to competition and benefit students within the higher education sector. It asked whether commercial bodies considered the options to be workable and whether there were any alternative ways of defining for-profit providers of higher education for VAT exemption purposes. The consultation closed in December.

The responses to the consultation highlighted that commercial organisations favour widening the scope of the exemption but it was felt that the proposals did not go far enough. There was also a general concern that whilst efforts were being made to widen the choices for students at higher education level the proposals did not actively address other equally important areas of education such as vocational training and further education.

There were also concerns about the administrative burdens that would be created especially for organisations delivering both higher and further education if they had to create separate entities to deliver different types of education. Respondents to the consultation argued that they should be able to adopt structures that are currently available to certain providers of further education.

"No decision has yet been made on whether to extend the exemption to cover for-profit providers, but there may be a further consultation later this year seeking further views on the case for change and how this might be implemented," said HMRC's response.

Tax expert John Christian of Pinsent Masons, the law firm behind Out-law.com, said: "It is difficult to see how the Government can effectively open up the higher education sector to competition from for-profit providers without levelling the VAT playing field".

"There is still a long way to go on this, particularly on the scope of education to be within the exemption and whether the exemption should attach to the type of education provided rather than the type of body providing it," Christian said. "The response also touches on the important question of how any changes would apply to non-UK providers and distance learning providers."