In April 2016, the government unveiled the latest of its series of tax reliefs for creative industries. Orchestra Tax Relief (OTR) allows ensembles to pay less tax on concert revenue, or receive money back from HMRC.
Unlike other Creative Industry Tax Reliefs (CITRs), Orchestra Tax Relief doesn’t require a “cultural test”. Any ensemble of 12 or more musicians can apply, as long as:
- The majority of instruments are not amplified.
- At least 25% of Core Expenditure is made in the European Economic Area (EEA).
- Concerts are primarily intended for performance to a paying public, rather than promotion or advertising, contests or competitions, or to make a recording.
- The ensemble forms a UK company.
Note that the word “orchestra” is not specifically mentioned for ensembles to qualify. That means if you have a mid-sized brass or wind ensemble, you can still qualify. Non-classical groups are unlikely to qualify, given the requirement for a majority of unamplified musicians.
How does it work?
OTR offers additional tax relief on “Core Expenditure” – essentially, money spent on producing the concert (or series of concerts), including travel, but not promotion, financing, legal, storage or performance costs. OTR only applies to expenses incurred within the EEA.
Within those restrictions, relief is extensive. Qualifying companies can receive either:
- A 100% enhancement on qualifying expenses (capped at 80% of Core Expenditure) OR
- A cash payment equal to 25% of trading loss, EEA Core Expenditure or 80% of all Core Expenditure; whichever is lowest.
To illustrate, let’s look at two simple scenarios.
Scenario 1: Reducing taxable income on a net profit
You spend £100 and make £200, giving you a net profit of £100.
HMRC will ‘enhance’ your expenditure of £100 to an effective £180. This reduces your taxable profit to £20, rather than the £100 it would be without the tax relief.
At 20% corporation tax rate, you pay £4 (20% of £20) instead of the £20 (20% or £100) you would have.
Scenario 2: Receiving cash against a loss
You spend £100 and make £100.
HMRC will ‘enhance’ your expenditure to £180, giving you a net loss of £80. You receive a cash payment equivalent to 25% off that loss i.e. £20.
Why apply for OTR?
OTR can significantly reduce the amount of tax payable on revenue from concerts, meaning more money to reinvest in future productions – capitalising on the success of the first. Equally, the cash payments made against losses can soften the blow of financially disappointing productions.
Most ensembles will require some set-up costs – forming a limited company, for example – but if you make any significant revenue from performances, these will be more than outweighed by the tax savings.
To find out more about the Orchestra Tax Relief, download our Orchestra Tax Relief Fact Sheet.