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