What is Orchestra Tax Relief (OTR)?
Finance Act 2016 introduced the Orchestra Tax Relief effectively applicable from April 1, 2016, specifically applies for Corporation Tax. Association of British Orchestras (ABO) was the first, proposed the initial structure of relief and then was supported by the Incorporated Society for Musicians (ISM) and other music divisions. Government then stepped up by reducing the minimum collaborative size entitled for tax relief to 12 musicians from 14, only necessitating at least of one orchestral instrument to be involved rather than four. Orchestra Tax Relief thus is the latest one in the category of tax reliefs applied for the upgrade of creative industries. This applied aiming to support and increases the production of orchestral concerts, specifically to promote the unprofessional or inexpert orchestral groups across the UK as most of them carry a huge potential in their relevant field with the most prospected future possibilities.
Since the Orchestra Tax Relief is applicable on orchestras of all types, sizes and touring habits, with a relief rate of 25% on the qualifying expenses from April1, 2016; however, some considerations still kept before allowing the relief to any group or company:
- The company must be involved in the creation of live orchestral performances.
- Tax relief is subject to the creative and production cost involved in the performance production.
- Tax rates are defined no matter whether the concerts are performed either statically within the area or touring.
- OTR can be claimed for every year if the concerts performed, qualifies every year.
Who can Claim for the Relief?
For a company or group of 12 or more instrumentalists, performing as the main focused factor in the concert may potentially claim for OTR. Moreover, a musical group may be entitled for the relief if sustaining:
- An inclusive gain of £487 for a performing group with yearly concert production cost of £5,000,
- An overall gain of £3,637 for a group with an annual production cost of £34,177.
However, besides the monetary aspects some more factors are also established, getting opportunity to claim for OTR:
- Although this is named as Orchestra Tax Relief, yet it is not for a traditional orchestra only; it too implies on many other types of instruments performing groups.
- The OTR will cover performances by musicians. Thus the concert must be focused to the instrumental performance rather than having a backing band, however concerts with vocal performances assisted by an instrumental group can also be listed in.
- The relief is not dependent on the type of the audience, kind of performance, technicality aspects of the musicians or composer’s modernity, means no Cultural Test is applicable for this relief. Only the thing considered is the monetary weight applied on the concerts.
- The company must be within the control to UK tax and directly involved in the production and expansion of orchestral performances, making an effective contribution in upgrading the creativity, technicality and artistic contributions.
- Concerned company must be primarily involved in the decision making practice to provide the performance and in the direct negotiation of the contracts along with providing employment to the performers or artists. Also the company must be liable directly to pay for goods, rights and services.
- As per HMRC directives, charitable concerns are also able to claim for the relief on the same grounds as applicable for other production companies even if they are paying corporation tax; however they may claim the repayable credit.
- The concerts must be of live performances comprising a group of at least 12 musicians demonstrating different instrumental equipment. The orchestral composition and artist must be the principal focus and segment of each performance. Companies occasionally also involved in rock or pop music performances besides the core orchestral concerts may also apply for the tax relief.
- Only one company among the Co-production houses may eligible to claim for OTR. The specific company should be chosen by the involved entities also it must be primarily engaged in orchestral concert production, yet the production costs incurred by the production company may be included only to claim.
Parallel, in the case of series of concerts some considerations also exist for claiming the relief:
- Two or more orchestral concerts must be lined up to be performed.
- All or maximum percentage of the qualifying orchestral performances must be included in the concerts claiming the relief for.
- The claiming company must be engaged in producing series concerts specifically.
- The expenses for European Economic Area (EEA) must be met with the set parameters for the series concerts tax relief.
Rates and Conditions of Relief
It is well-known that qualifying companies must be primarily involved in producing the orchestral concerts to claim for the tax relief. Though most of the prospects are similar as applicable for Theatre Tax Relief (TTR), in terms of incurred production and development cost computation for live performances or assigning new musical work, incursion of at least 25% of the core expenditure in EEA specifically; however in orchestral performances rehearsal costs are included rather than performance costs. Hence on the mentioned parameters the qualifying companies may claim for the relief for:
- An additional tax exemption of 100% on the expenditure should be lesser of either UK qualifying expenditure or 80% of the total qualifying outlays.
- A repaid tax credit may be claimed against 25% of the occurred and surrendered loss in case of claiming enhanced deduction of the production and development expenditure for qualifying limit. It is noticed here that the 25% of the loss is set for touring production only whereas for non-touring concerts the limit is to 20% of the loss surrendered.
- Each concerned musical company may claim for the available relief of £50 and the relief amount must not exceed 100% of eligible qualifying expenditure. Here the qualifying core expenditures must be noticed, viz., artists or performer’s fees; rehearsal costs, venue hired for rehearsals, total hiring for the musical concert; relevant travel and maintenance costs within the UK;
- Majority of the concerts must be comprised of 12 or more performers’ ensemble for the musical performances with the orchestral presentation as the core object along with vocal combination.
- Theoretical expenditures and ordinary running costs will not be inclusive in the relief. Indirect expenses like costs of marketing or advertising, fees for legal process or consultancy, fees for financing or accounting, administration and overseas travel and maintenance are also excluded.
- If the performances are set either for competitive purpose or for recording and broadcasting prospect or promoting any goods or service then it will excluded from tax relief. If the incurred costs are still not paid in the specific account period then the company will not be eligible to claim for relief.
How to Claim Orchestra Tax Relief?
When a company steps up to claim for Orchestra Tax Relief then it won’t be able to claim for other reliefs under the tax credit scheme like film tax relief, theatre tax relief or the research and development tax relief. HMRC has already introduced the draft legislation to process the claim for relief; however the claim process requires a bit of attentive work to edit and incorporate the requirements and changes to be processed with. At the initial level of the process to start with the company must be a set up limited company contracting with the relevant activities. At the end of financial year the company must complete its accounts to be eligible for the relief claim.