Orchestra Tax Relief (OTR)
"NCO engaged Graham at the start of 2019 and has developed a wholly positive and ongoing relationship ever since. Not only has Graham increased our understanding of OTR and how it applies to NCO, he has taken all the stress and strain away from the process. His previous experience as a tax specialist at HMRC has proved invaluable as has his ability to explain the complexities to us in a way we can understand! I cannot recommend Graham more highly. "
Sophie Lewis, Managing Director of the National Children's Orchestras of Great Britain (https://www.nco.org.uk/)
What is OTR?
OTR is a scheme introduced to support and encourage the creation of orchestral concerts.
It was introduced on the 1st April 2016 and can be claimed by companies that produce qualifying orchestral concerts.
Subject to the company and the orchestral production meeting the qualifying conditions as set out in the legislation in Finance Act 2016 (see link).
OTR is based on the Film Tax Relief scheme introduced in 2007 and subsequently extended to other creative industries including TV, Animation, Video Games, Theatre and Museums and Galleries.
OTR is processed through the Corporation Tax system and is available to incorporated companies, commercial and charitable, that produce qualifying orchestral concerts.
How does OTR work?
OTR works by enhancing expenditure incurred in the production process and creates an additional deduction to be set against the profit or loss, (or surplus or deficit in respect of charitable companies) of each concert.
For commercial companies, the additional deduction reduces the profits assessable for Corporation Tax and, where it extends or creates a loss, allows that loss to be surrendered to HMRC for a payable tax credit.
For charitable companies, the additional deduction reduces the surplus already exempt from Corporation Tax and, where it extends or creates a deficit or loss, allows this to be surrendered to HMRC for a payable tax credit.
Who qualifies?
Orchestral companies constituted as a:
- company limited by shares
- company limited by guarantee
- Charitable Incorporated Organisation (CIO)
- Scottish Charitable Incorporated Organisation (SCIO)
- Community Interest Company (CIC)
All fall under the Company Tax regime and, even if they do not currently file Company Tax Returns, can claim OTR if they produce qualifying orchestral concerts.
Unfortunately, if the company is an unincorporated association (UA) or a trust then they are currently unable to claim OTR.
If the UA or trust wishes to claim OTR then it must either set up a separate production company or alternatively, change its structure.
One increasingly popular option is for a charitable UA to convert to a CIO or SCIO.
This is a decision for the orchestral company and HMRC has no issue with either option.
Which orchestral concerts qualify?
A company must fulfil several eligibility criteria before it can claim:
- The concert must have instrumentalists as the main focus of the concert
- Performances must be performed wholly or mainly by an orchestra, ensemble, group or band
- The concert must have at least 12 instrumentalists and the majority of the instruments must not be electronically amplified
- At least 25% of the core expenditure on the production must be spent in the European Economic Area (EEA)
You must be the Production Company responsible for the creative, technical and artistic decisions during the production phase and for the running and closing of the concerts.
The concert must also meet what is called the commercial purpose condition.
That is that the production company intends that all or a high proportion of the live performances will be to either:
- to paying members of the general public or
- provided for educational purposes.
Which expenditure qualifies for enhancement?
Expenditure qualifying for enhancement is called Core expenditure and includes expenditure incurred on:
- producing the concert
- exceptional running costs, and
- closing the production.
For example, the instrumentalist’s director’s and staff rehearsal time, instrument hire and payment for music rights.
Non-qualifying or non-core expenditure include costs relating to:
- developing the production
- non-producing activities and
- the cost of the performance itself
- Non-producing activities include, for instance, financing, marketing, legal services and storage.
Where expenditure falls across the various phases of production then it will need to be apportioned on a just and reasonable basis.
For the purposes of Orchestra Tax relief, each concert is considered to be a separate trade.
However, a company may elect to have a series of concerts treated as a single concert.
The elections should be made prior to the first concert in the series and should specify all the concerts to be included, including those which do not qualify for the relief.
The length of the election may stretch over one accounting period.
Election for a concert series
HMRC does allow a company to elect to treat a series of concerts as if it were one concert for the purposes of claiming OTR.
The election must be made prior to the first concert in the series and is irrevocable once made.
How is OTR claimed?
OTR is claimed through the Company Tax system which means that claims must be made within a Company Tax Return or an amendment to a Company Tax Return.
Claims must include computations in respect of all qualifying concerts and detail income received, as well as core and non-core expenditure, plus details of any apportionments used.
As specialists in Orchestra Tax Relief, we are here to help you achieve the maximum benefit available whilst making the process as simple as possible.
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