VAT exemption for for-profit HE providers – consultation

The government has moved forward with its promise to review the VAT status of commercial HE providers, first announced in this year’s Budget.

A consultation closing in December can now be found here on the HMRC website.

The idea is simply that for-profit operations would be exempt from charging VAT on their tuition fees in the same way that charitable and public education providers are under EU law.

The 2011 White Paper announced its intention to create a ‘diverse and competitive’ HE sector and the government is now minded that for-profits are disadvantaged in relation to VAT and that this distorts competition.

It is not clear that this is the case – both BPP University College and New College of the Humanities have adopted not-for-profit subsidiaries to benefit from the VAT exemption. This reform would seem to be more about allowing the distribution of profits than generating competition.

And if all significant differences are eroded between charities and for-profits so as to ensure a ‘level playing field’, then what does that mean for the charities? For-profits have the large advantage of being able to raise equity capital and other forms of investment.

If this change were to go ahead, it is not clear how the majority of charitable institutions would remain competitive in the new terrain.