Creative sector tax reliefs: orchestra tax relief
An orchestral production company (OPC) may be eligible for orchestra tax relief (OTR) in respect of expenditure incurred in producing an orchestral concert. The relief increases the amount of expenditure that is allowable as a deduction for tax purposes and, if the company makes a loss, allows some or all of that loss to be surrendered for a payable tax credit.
Orchestral production companies
An OPC is a company responsible for all aspects of producing an orchestral concert (see below).
It must be actively involved in the decision-making process for the concert or concert series. It must make an effective creative, technical and artistic contribution to the concert, and it must directly negotiate, contract and pay for rights, goods and services in relation to it. It can engage third parties to undertake some activities on its behalf, but it cannot entirely relinquish its involvement in any of these activities.
An orchestral concert
An orchestral concert, for the purposes of OTR, is a concert which meets the following key criteria:
- It is performed by an orchestra, ensemble, group or band consisting wholly or mainly of instrumentalists;
- There must be at least 12 instrumentalists;
- Only a minority of the instruments can be electronically amplified; and
- At least 25% of the “core expenditure” on the concert must be “European expenditure”. Core expenditure is expenditure incurred by the OPC on producing the concert up to the performance, and travel to and from a venue that is not the usual venue of the company. Core expenditure does not include costs which are not directly incurred for the purpose of the concert, such as expenditure on financing, marketing, storage, or legal services. Core expenditure is European expenditure if it is incurred on goods or services that are provided from within the UK or EEA.
The government’s intention is that, from 1 April 2024, the requirement will be that 10% of core expenditure will need to be UK expenditure (i.e. expenditure incurred on goods or services that are used or consumed in the UK).
The intention must be for the concert to be performed live before the paying public, or for educational purposes. In order to be regarded as performed before a paying public, a concert must be separately ticketed, and the intention must be that a significant proportion of concert earnings should come from those separately ticketed sales. The inclusion of incidental items, such as programmes or food, within the ticket price does not prevent the concert from being considered as separately ticketed, as long as it is possible to apportion the ticket price between the performance and incidental items.
Concerts are excluded from the regime in the following circumstances:
- The concert consists of or includes a competition or contest; or
- The main objective of the OPC’s activities in relation to the concert is to make a broadcast or recording.
How is tax relief given?
The basic position is that each orchestral concert (or concert series) is treated as a separate trade for tax purposes, with tax reliefs being given in the context of the taxable profits or losses of that trade.
Orchestra tax relief comprises two elements:
- An additional allowable deduction in calculating taxable profits; and
- A payable tax credit.
Additional tax deduction
The OPC is eligible for an additional deduction in calculating taxable profits of the concert trade equal to the lower of:
- 80% of total core expenditure; and
- 100% of the core expenditure that is European expenditure.
Payable tax credit
Where a tax loss is incurred in respect of a concert some or all of that loss (the “surrenderable loss”) may be surrendered to HMRC for a payable tax credit.
The “surrenderable loss” is the lower of:
- The trading loss for the period (taking account of the additional deduction); and
- The additional deduction for that period.
The payable tax credit is currently calculated at 50% of the amount surrendered. This is currently intended to fall to 35% from 1 April 2025 and to 25% from 1 April 2026.
Where an accounting period straddles the date of a rate change, profits are apportioned on a just and reasonable basis.
How Moore Kingston Smith can help
This article provides only a brief summary of the issues surrounding Orchestra Tax Relief. We would be pleased to discuss your particular circumstances and provide advice in relation to your eligibility for the tax relief. Get in touch with our expert team.