The Treasury has issued a consultation document on proposals to offer extended VAT exemptions to commercial higher education (HE) providers, effectively placing them in the same VAT-free category as institutions such as universities.

The issue was first mooted by the government at Budget 2012 when it announced it would consult on, and review, the VAT treatment of education, particularly at university degree level, to ensure commercial bodies supplying courses similar to universities are treated on equal footing.

Currently, the majority of commercial providers of HE do not qualify as 'eligible bodies' for the purpose of the VAT exemption and cannot exempt their courses in the way that universities and not-for-profit providers can.

Broadly speaking, the consultation proposes that eligibility be determined by the types of course/qualification offered. The Treasury is also considering whether to tie eligibility for exemption to those bodies that are either listed on 'The Education (Listed Bodies) Order' or 'The Education (Recognised Bodies) Order', or whose courses are eligible for a student loan (or equivalent).

Andrew Payne, an education specialist in PKF's VAT practice, said: 'It is clear from the consultation document that a multitude of issues need to be resolved if the proposed exemption is to comply with European tax directives. That's why the Treasury is asking a number of general questions about how commercial HE providers run their businesses, as well seeking input into more technical tax issues as it normally does in consultation documents.

'The eligibility criteria that are under consideration will create complexity and new borderlines. The introduction of the exemption will also mean a restriction to the VAT that providers can recover on their input costs, so their cost bases will effectively increase. However, I would expect most commercial HE providers will conclude that this is a price worth paying for introducing the exemption.'

The closing date for comment is 5 December 2012.