Navigating Orchestra Tax Relief to Boost Your Finances
Orchestra Tax Relief (OTR) is a vital component among the eight creative industry tax reliefs, designed to bolster the financial health of qualifying orchestras.
Despite the term "tax relief" possibly being misleading for charitable orchestras, these organisations can still benefit from OTR even if they don't have a corporation tax bill.
Key Eligibility Criteria:
1. Legal Status: OTR can be claimed by limited companies, including Charitable Companies and Community Interest Companies (CICs). Trusts and unincorporated associations do not qualify.
2. Primary Activity: Your organization must be chiefly involved in live orchestral performances, contributing creatively, technically, and artistically to concerts.
3. Performance Details: Concerts must feature at least 12 musicians, with the majority playing non-electronically amplified instruments, aligning more with classical music than rock or pop.
4. Audience and Purpose: Performances should be live for paying public members or educational purposes. Digital broadcasts are acceptable if live performance is the main goal.
5. Exclusions: Concerts intended for recordings or competitions are not eligible.
6. Trade Consideration: Each concert is a separate orchestral trade unless a series election is made. This decision, irreversible, must be made before the first concert.
7. Core Costs: 25% of core costs must come from the UK or EEA, with a new requirement from April 2024 for 10% to be UK-related. Assume 80% of costs are from the UK.
Defining Core Costs:
Core expenditure includes all production costs up to the point of performance:
Player and artist fees
Rehearsal costs
Venue hire for rehearsals
Musical scores hiring or commissioning
Relevant travel and subsistence within the UK
Understanding what does not qualify as a core cost is equally important. Specifically, the costs associated with the performance itself are not eligible. Eligible core costs cover all expenses incurred up to the concert’s performance. Practically, this means that player fees must be divided between rehearsals (eligible) and the concert itself (ineligible).
While there is no official list of ineligible costs, certain expenses are specifically excluded, including marketing and advertising, legal and accountancy fees, and overseas travel and subsistence. Although these costs are essential for producing orchestral concerts, they do not fall within the scope of core costs for OTR purposes.
Enhancing Core Costs:
Core Costs incurred in the UK receive an additional deduction of 80%. This reduces taxable profits for profit-making ventures.
If the additional deduction results in a loss or increases an existing loss for your company, you can surrender some or all of that loss for a payable Orchestra Tax Credit (OTC), which is essentially a cash refund.
This scenario is particularly important for orchestras structured as charitable companies or CICs. Many of these organisations do not typically consider themselves eligible for corporation tax reliefs. However, you can still surrender the loss incurred from your orchestra concert to receive an OTC. To claim this, you will need to submit a corporation tax return.
Core Costs | Non-Core Costs |
Player and artist fees (up to rehearsals) | Performance fees |
Rehearsal costs | Marketing and advertising |
Venue hire for rehearsals | Legal and accountancy fees |
Hire/commission of musical scores | Overseas travel and subsistence |
UK travel and subsistence |
Current Relief Rates:
Until March 31, 2025: 50%
April 1, 2025 - March 31, 2026: 35%
Post March 31, 2026: 25%
The deadline for applying for OTR is 2 years from the end of the accounting period in which the concert or series took place though it is sometimes possible to backdate claims even further.
Additional Form Requirement:
From April 1, 2024, claims must include a new form submitted online, detailing concert production dates, performance numbers, venues, and financials. Ensure this is done alongside your corporation tax return.
Be careful: we discovered a note in the additional online form indicating that non-touring orchestra projects should be claimed at a temporary enhanced credit rate of 45%. However, after verifying with the HMRC creative industries team, we can confirm that the OTR credit rate is 50% for both touring and non-touring concerts or series.
Final Thoughts
Submit all supporting evidence with your claim on or before the tax return submission day to ensure completeness.
With careful planning and attention to detail, your orchestra could significantly benefit from OTR, providing a financial boost to support your artistic endeavors.
If you found this post useful, please be sure to sign up to our Newsletter where we share regular Top Tips for Musicians.
Comments