Consultation outcome

Orchestra tax relief consultation

Updated 24 March 2015

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

0.1 Foreword

Britain’s orchestras are heard across the country and around the world. Within the UK, national and regional orchestras provide enrichment to millions of people each year. They also have an international audience - our orchestras tour across continents and make music that is enjoyed around the world.

I want to make sure that orchestras can continue to thrive in the UK.

At Autumn Statement 2014, I announced that the government would extend its successful creative sector tax reliefs to orchestral performances. This new tax relief will encourage orchestras to perform across the whole of the UK.

As with the other creative sector reliefs, this policy aims to provide generous support to orchestras in order to promote British culture in a sustainable way.

The government’s creative sector tax reliefs have a demonstrated record of success. They have shown that targeted support can make a positive impact, not only in terms of boosting economic activity, but also as a way of promoting British culture and improving the way the UK is viewed around the world.

George Osborne

Chancellor of the Exchequer

1. Introduction

1.1 Background

The Chancellor announced at Autumn Statement 2014 that the government would introduce a new tax relief for orchestras. Britain is home to a number of world-famous orchestras which provide enrichment and education to millions of people in the UK each year. In addition, British orchestras perform pieces that are enjoyed by audiences around the world.

This new tax relief recognises the artistic importance and cultural value of British orchestras. Its objective is to support orchestras so they can continue to perform for a wide range of audiences.

1.2 Aim of the consultation

This consultation aims to inform the development of orchestra tax relief so that the relief works well for the orchestral sector. This relief will be based on the other creative sector tax reliefs, though it may be adapted in key areas to reflect the particular way in which orchestras operate.

This consultation document sets out the details of the proposed tax relief and seeks views in key areas of its design. Views are invited from a wide range of respondents including individuals, companies, and representative and professional bodies. The government especially invites comments from orchestras themselves and from those working directly in the orchestral sector. The government will take all responses into account before confirming the final policy design.

1.3 Policy context

The government is committed to supporting the creative industries, which add value to Britain’s culture and play an important role in a dynamic and diversified economy. The government provides targeted support for the creative industries through specific spending and tax measures. Orchestra tax relief joins a number of other creative sector tax reliefs that are offered by the government, including relief for films, high-end television, animation, video games and theatre productions.

This model of tax relief has proven to be successful. In 2013-14, the film tax relief provided support to over 320 films being made in the UK. Since relief was introduced in 2007, over 1,200 film productions have made claims for a total of £1.3 billion.

1.4 Structure of the document

The remainder of the document is set out as follows:

• Chapter 2 explains the criteria that the government intends to use to evaluate proposals for the new tax relief

• Chapter 3 addresses key design features and definitions

• Chapter 4 includes details on other relevant issues

• Chapter 5 explains the consultation process

• Annex A provides an illustrative example of how orchestra tax relief might work in practice and how it could be calculated

• Annex B provides an impact assessment for the new tax relief and makes a call for further evidence

• Annex C summarises the consultation questions presented in this document

• Annex D sets out the planned timeline for implementation

• Annex E sets out the general code of practice for consultation

1.5 Stage of consultation

The proposals in this document are at stage 2 (determining the best option and developing a framework for implementation including detailed policy design) of the government’s tax consultation framework.

1.6 Planned timeframe

This consultation will run from 23 January to 5 March 2015. Further detail is set out in Annex C.

Further details about the policy, including the rates of relief, will be announced in spring 2015 once this consultation has concluded.

1.7 How to respond

Please send comments by 5 March 2015 to:

Orchestra Tax Relief Consultation
Enterprise and Property Tax Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Or email: orchestrataxrelief@hmtreasury.gsi.gov.uk

2. Principles and criteria

The criteria that the government will use in evaluating proposals to support orchestras are set out below.

In deciding how best to proceed, it will be necessary for the government to consider and balance these, sometimes competing, factors:

• effective. Any proposed policy change must be effective in supporting orchestras to deliver cultural benefits, encouraging the sector to develop across the UK and incentivising touring productions to ensure that a wide range of audiences can enjoy orchestral performances

• affordable. The proposed relief must represent value for money to the taxpayer and must be affordable in line with the government’s objective for long-term sustainability in the public finances

• simple and straightforward to administer. The government is committed to simplifying the tax system. Any proposed change should not result in unnecessary burdens for companies, charities or other groups, for individuals or for the administration of the tax system

• sustainable. Any proposed change must be designed, as far as possible, to fit both the current and future states of the orchestral sector

• not open to abuse. Tax reliefs should not create any additional avoidance opportunities

• compliant with EU law. Any proposed policy change must be consistent with the principles of the Single Market and will need to be achievable in the context of EU rules on State aid

Question 1

Do you agree with the proposed criteria for assessing the options to provide support to the orchestral sector? Please provide any comments as appropriate.

3. Definitions and design

The government wants to design a tax relief that is simple to use and provides value to the orchestral sector. In addition, it is important to keep the model of tax relief as close as possible to the existing creative sector tax reliefs to ensure fairness. For these reasons, the government is looking to adapt the model for theatre tax relief in key areas to better suit the orchestral sector. This chapter sets out, and seeks views on, the proposed design features and definitions for the new relief, including the potential ways in which theatre tax relief could be adapted for orchestras.

3.1 Proposed key features

Key features of orchestra tax relief:

• to qualify for relief, the business must be incorporated and engaged in the production of live orchestral performances, as defined below

• relief will take the form of an additional deduction for corporation tax purposes which can be surrendered for a payable tax credit

• tax relief will be available for the creative and production costs of live orchestral performances but not for day-to-day running costs

• there will be a higher rate of credit for performances that are part of a tour to encourage orchestras to play for a wide range of audiences

• to ensure that the claims process is effective and efficient, it will be possible for orchestras to group together multiple qualifying performances in one tax relief claim

3.2 The definition of an orchestral performance

To create an effective scheme, the government will need a definition of an ‘orchestral performance’ that is workable in legislation while also being recognised by and appropriate for the orchestral sector. The definition should be broad enough to capture the range and diversity of orchestral performances, including those by symphony, chamber and youth orchestras. It should also support orchestras performing modern and innovative, as well as more traditional, musical pieces.

At the same time, the government wants to ensure the relief targets orchestras effectively. Certain exclusions will be needed to ensure that the relief meets the policy objective. These could include an exclusion for performances of non-orchestral musical pieces. In addition, the definition must not be subject to abuse.

3.3 Proposed definition of an ‘orchestral performance’ for the purposes of tax relief

To qualify, the majority of performances for which relief is being claimed must be played by a musical ensemble consisting of 14 or more performers and must include players drawn from each of the following four sections: string instruments, woodwind instruments, brass instruments and percussion instruments.

Proposed exclusions:

• entertainment with a competitive element

• performances where the sole or main purpose is for advertising

• performances intended solely or mainly for recording or broadcast

• performances of certain genres of non-orchestral music, such as pop and rock

Question 2

Would adopting the definition outlined above be an effective way of meeting the government’s objectives as set out in Chapter 1?

Question 3

If the government were to adopt the above definition, what combination of instruments should be specified for inclusion? Please provide information on instruments that are generally used in the majority of performances.

Question 4

Is there an alternative definition of an ‘orchestral performance’ that would more accurately reflect the full range of activity done by orchestras? If so, please provide details.

Question 5

Is the exclusion of certain genres of music the most appropriate way to ensure that the relief targets orchestras effectively? If not, what solutions do you propose to exclude non-orchestral performances from the relief?

3.4 Eligible production companies

Qualifying orchestras will be able to claim an additional deduction on their corporate taxes that can be surrendered for a payable tax credit if this results in a trading loss. Because this policy will take the form of a corporation tax relief, only companies that are within the charge of UK corporation tax and are directly involved in the development of an orchestra’s performances will be able to claim relief. ‘Directly involved’ means that the company is responsible for creating and developing the content of the performance and is actively involved in the decision making process to deliver it.

The government recognises that many orchestra production companies are charities. Charities will be able to access orchestra tax relief on the same basis as any other production company. The calculation of credit will remain the same as for any other company within the charge of UK corporation tax.

Although this is not compulsory, some orchestras may choose to use a wholly owned trading subsidiary in order to claim tax relief. Orchestras that have not used these subsidiaries before should ensure that using this model would not impact on their charitable status and would not have any VAT implications. The process for setting up such a trading subsidiary is the same as it would be for establishing any other business. Guidance is available on GOV.UK, for example on registering a company and setting up a private limited company.

Question 6

Would the requirement to be incorporated affect current funding or subsidies that are received by some orchestra groups? If so, please explain in what way.

Question 7

Are there any other difficulties which might arise from the requirement to be incorporated that the government should take into account?

3.5 Qualifying ‘core’ expenditure

In order to qualify, expenditure must be directly incurred in the creation and development of an orchestral performance and must be integral to the creative process. The list below sets out some examples of the eligible and ineligible costs. In line with other creative sector tax reliefs, indirect expenditure, such as the costs of marketing or financing, will not be eligible for tax relief. In addition, speculative expenditure and ordinary running costs will be excluded from relief.

Qualifying expenditure can be incurred in any country, although at least 25% of the core expenditure must be incurred in the European Economic Area.

Examples of core expenditure

Qualifying ‘core’ expenditure:

• player and artist fees

• rehearsal costs

• venue hire for rehearsals

• hire or commissioning of musical scores

• relevant travel and subsistence within the UK

Ineligible costs:

• cost of financing

• fees, including legal and accounting fees

• administration

• marketing and advertising

• overseas travel and subsistence

Question 8

Which costs are integral to the creative process itself and should therefore be eligible for relief? Please explain your choices.

Question 9

Are there alternative rules that would be simpler or more effective to ensure that speculative expenditure and ongoing running costs do not qualify for relief?

3.6 The claims process

For theatre tax relief, production companies are required to treat each production as a separate trade and must make a separate claim for relief for each one. The government recognises that orchestras generally perform a greater number of pieces in a shorter period of time than theatre production companies do.

To ensure that the claims process is as effective and efficient as possible, the government could give orchestras an additional option to treat all qualifying performances in a defined season or a tour as a single trade with a single claim. This model is intended to reduce the administrative burdens associated with claiming tax relief.

Question 10

Would the option of grouping together all performances in each accounting period be an attractive option for orchestras? If not, please explain why.

Question 11

Are there any other specific design points which need to be addressed?

3.7 The incentive to tour

One of the aims of this tax relief is to encourage orchestras to perform for a wide range of audiences and therefore the government is considering a higher rate of relief for touring productions. The government proposes that the ‘intention to tour’ will need to be demonstrated by evidence of plans to perform in at least three different venues within a period of two weeks.

Question 12

Is there an alternative definition of touring that would more accurately reflect the nature of these types of performances? If so, please provide suggestions.

4. Other issues

4.1 Commencement

The government wants to provide orchestras with the time to make any necessary arrangements so they are in a position to claim the relief once it becomes available. Orchestra tax relief will therefore have a commencement date of 1 April 2016.

The government will provide relief on qualifying expenditure that is incurred on or after 1 April 2016. Where an accounting period straddles that date, expenditure arising in that period must be apportioned between the period on or before 31 March 2016 and the period on or after 1 April 2016.

4.2 State aid

This relief is intended to fall under revised General Block Exemption Regulation rules, which will allow for a State aid exemption when aid is for culture and heritage.

Under these rules, the maximum relief available per company is £50 million, and the maximum aid intensity should not exceed 100% of eligible costs. Aid intensity includes all sources of government funding including, for example, grants and lottery funding. Companies in receipt of other funding may need to declare all sources of funding to HMRC and confirm that they do not exceed this limit. Should companies receive excessive aid, then this aid could be clawed back for a period of up to ten years.

Question 13

Are there any issues with applying the rules proposed above in order to prevent aid intensity from exceeding 100%? If so, please explain.

5. Claiming tax relief from HMRC

Claims for orchestra tax relief will need to be included in a company’s corporation tax return for an accounting period. This model is generally expected to provide businesses with enough certainty to be able to self-assess without the need for a formal clearance process.

Question 14

Are there any issues for the orchestral sector in applying the same process as for theatre tax relief to make claims under the new orchestra tax relief?

5.1 Interaction with other reliefs

Where a company claims orchestra tax relief, it will not be able to claim relief under another tax credit scheme such as film tax relief, theatre tax relief or the research and development tax credit.

For example, it is possible that some companies could produce orchestral performances which might also be eligible for theatre tax relief. Companies will not be able to claim relief twice on the same expenditure. It is a question for the company whether the expenditure relates to orchestra tax relief or another relief.

5.2 Expenditure incurred but unpaid

Any amount of costs incurred but unpaid within four months of the end of a period of account will not qualify for the tax relief for that period. Costs paid outside this period will be eligible for claims if they are paid in later accounting periods.

5.3 Openness to abuse

One of the key design criteria for orchestra tax relief is that it should not be open to abuse. An effective strategy to prevent abuse at the outset is a key requirement to maintain the long term sustainability of this relief and to ensure that it remains effective and sufficiently targeted.

The government will, in particular, consider whether rules are required to prevent:

• artificially inflated claims for tax credit or transactions not entered into for genuine commercial reasons

• wrongful disclosure

• tax avoidance arrangements relating to the production

It is important for businesses as well as the government to ensure that the new tax relief does not create substantial new avoidance risks, otherwise this will create uncertainty for business as the regimes may be subject to change. In extreme situations where substantial avoidance risks are created, such as the old film tax scheme, the regime was entirely replaced.

Question 15

Would the strategy outlined above be an appropriate way of preventing abuse of the new tax relief?

Question 16

Are there specific areas in addition to those mentioned above that create the opportunity for abuse?

6. The consultation process

6.1 Responding to the consultation

The closing date for this consultation is 5 March 2015.

Responses to the consultation should be sent either by post to:

Orchestra Tax Relief Consultation
Enterprise and Property Tax Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Or by email to: orchestrataxrelief@hmtreasury.gsi.gov.uk

This document can be found on the HM Treasury website. When responding, please state whether you are responding as an individual or as part of an organisation. If responding on behalf of a representative body please make it clear who the organisation represents and, where applicable, how the members’ views were assembled.

6.2 Confidentiality and disclosure

All written responses may be made public on the Treasury’s website unless the author specifically requests otherwise in writing.

Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regime. These are primarily the Freedom of Information Act (FOIA), the Data Protection Act (DPA) and the Environmental Information Regulations 2004.

If you would like the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory Code of Practice with which public authorities must comply and which deals, amongst other things, with obligations of confidence. In view of this, it would be helpful if you could explain to us why you regard the information you have provided as being confidential. If we receive a request for disclosure of information we will take full account of your explanation, but we cannot give an assurance that confidentiality will be maintained in all circumstances.

In the case of electronic responses, general confidentiality disclaimers that often appear at the bottom of emails will be disregarded for the purpose of publishing responses unless an explicit request for confidentiality is made in the body of the response.

Subject to the previous two paragraphs, if you wish part (but not all) of your response to remain confidential, please supply two versions, one for publication on the website with the confidential information deleted, and another confidential version for use by the Treasury.

Any FOIA queries should be sent by post to:

Correspondence and Enquiry Unit
Freedom of Information Section
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Or by email to: public.enquiries@hmtreasury.gsi.gov.uk

6.3 The government’s code of practice on consultation

This consultation is being conducted in accordance with the government’s code of practice on consultation. A copy of the code of practice criteria and a contact for any comments on the consultation process can be found in Annex E.

At 6 weeks, this consultation is shorter than the standard consultation time so that the government may provide additional details about the policy in the spring. This will enable orchestras to make the necessary preparations over the summer and autumn so they are in a position to claim tax relief once it becomes available.

6.4 Next steps

This consultation will last for a period of 6 weeks, closing on 5 March 2015. After the consultation period has closed, the government will consider the responses to the consultation. In line with the code of practice for written consultations, the government will publish a summary of responses to the consultation.

7. Annex A: Illustrative example

A large professional orchestra performs 40 main season concerts at the same venue over the course of an accounting year. It spends a total of £900,000 on these 40 performances, of which £800,000 is ‘core’ expenditure. The orchestra’s total income in respect of these performances for the year is £750,000.

Table A.1: Calculating relief for a large professional orchestra

	£’000
Total income	750
Total expenditure	(900)
Pre-tax relief profit/(loss)	(150)
Enhanceable expenditure (core expenditure of £800k x 80%)	640
Additional deduction (100 per cent the rate of enhancement)	(640)
Post-tax relief profit/(loss)	(790)

The loss that may be surrendered is the lesser of:

• the post-tax relief trading loss of £790,000; and

• the ‘enhanceable’ expenditure of £640,000

In this case, the orchestra company can surrender any amount up to £640,000 of losses. The amount of credit due is based on the loss surrendered multiplied by a payable credit rate which, for the purposes of this illustration only, will be assumed to be 20%. If the maximum value of £640,000 is surrendered, the orchestra company may claim a payment of £128,000 from HMRC.

8. Annex B: Tax impact assessment and call for further evidence

8.1 Summary of impacts

Table B.1: Orchestra tax relief impact assessment

Economic impact	This measure is expected to have a positive impact on the orchestra sector. It is not expected to have significant wider macroeconomic impacts.
Impact on individuals, households and families	Tax relief will only be available to orchestra production companies that are directly involved in the creation and production of qualifying performances and so is unlikely to impact on individuals and households. This policy is not expected to have any impact on family formation, stability or breakdown.
Equalities impact	The government has carefully considered whether this measure impacts on people with protected characteristics and has not identified any equalities impacts.
Impact on business including civil society organisations	Tax relief for orchestras will allow qualifying companies to claim a super deduction on their corporate taxes or a payable tax credit, supporting the orchestra sector. Because this is a new tax relief, some eligible companies may face one-off costs associated with familiarisation with new legislation, processes and requirements. The ongoing costs include the costs of calculating and claiming the relief.
Operational impact (£m) (HMRC or other)	It is expected that HM Revenue & Customs will incur additional annual costs to administer the new tax relief. Training and familiarisation with the new legislation will be required.
Other impacts	Competition assessment: this relief is targeted at a specific sector. All companies in this sector are eligible, so introduction is unlikely to affect competition within the sector. There should not be any significant impact on competition with other business sectors.
	Small and micro business assessment: the government recognises that there may be some increase in administration impacts on small businesses. However, overall the tax relief will impact positively on qualifying small companies. There will also be a specialist unit set up to help facilitate claims.
	Other impacts have been considered and none have been identified.

8.2 Request for further supporting evidence

The government is grateful to the orchestral sector for providing the evidence which has supported this policy’s development to date. The government now asks for interested parties to provide further evidence as requested below. This information is requested from all types of orchestras in scope of this relief, including: symphony, chamber and youth orchestras; professional and volunteer ensembles; orchestras in the commercial and not-for-profit sectors; and touring and non-touring orchestras.

The evidence provided will be used only for analytical purposes, to help the government further develop this policy and to examine its potential impact on the sector and Exchequer revenues. Any information provided will not be publicly disclosed.

8.3 Request for supporting evidence

Existing performances and behavioural effects

Please provide information for both touring and other performances on:

• the types of orchestral ensembles likely to fall within the proposed definition

• any industry-wide estimate for the total size of the production of orchestral performances in the UK (i.e. total direct expenditure on developing orchestra performances). This will help provide a better picture of the current size of the sector as well as how it may grow in response to the tax relief

• the annual direct expenditure for orchestra performances, broken down by individual projects and by the stage of production in the creative process

Case studies for the development of performances

Please provide individual case studies, including information on:

• funding sources, including a breakdown and any input from co-production partners and details of any overseas tax incentives accessed

• the timing of production expenditure, showing when and how much expenditure takes place during the production process

• expenditure that is incurred outside of the UK and the European Economic Area

Administrative burdens

It is envisaged that the administrative burden of applying for this new relief will be similar to the burden of applying for theatre tax relief. If you have previously claimed theatre tax relief, please estimate the administrative cost to your business of applying for the relief.

The government appreciates that the necessary detail may not be available for companies that have not previously applied for theatre tax relief to estimate the cost of administering the new tax relief.

9. Annex C: Summary of consultation questions

9.1 Chapter 3: Principles and criteria

Question 1

Do you agree with the proposed criteria for assessing the options to provide support to the orchestral sector? Please provide any comments as appropriate.

9.2 Chapter 4: Definitions and design

Question 2

Would adopting the definition outlined above be an effective way of meeting the government’s objectives as set out in Chapter 1?

Question 3

If the government were to adopt the above definition, what combination of instruments should be specified for inclusion? Please provide information on instruments that are generally used in the majority of performances.

Question 4

Is there an alternative definition of an ‘orchestral performance’ that would more accurately reflect the full range of activity done by orchestras? If so, please provide details

Question 5

Is the exclusion of certain genres of music the most appropriate way to ensure that the relief targets orchestras effectively? If not, what solutions do you propose to exclude non-orchestral performances from the relief?

Question 6

Would the requirement to be incorporated affect current funding or subsidies that are received by some orchestra groups? If so, please explain in what way.

Question 7

Are there any other difficulties which might arise from the requirement to be incorporated that the government should take into account?

Question 8

Which costs are integral to the creative process itself and should therefore be eligible for relief? Please explain your choices.

Question 9

Are there alternative rules that would be simpler or more effective to ensure that speculative expenditure and ongoing running costs do not qualify for relief?

Question 10

Would the option of grouping together all performances in each accounting period be an attractive option for orchestras? If not, please explain why.

Question 11

Are there any other specific design points which need to be addressed?

Question 12

Is there an alternative definition of touring that would more accurately reflect the nature of these types of performances? If so, please provide suggestions.

9.3 Chapter 5: Other issues

Question 13

Are there any issues with applying the rules proposed above in order to prevent aid intensity from exceeding 100%? If so, please explain.

Question 14

Are there any issues for the orchestral sector in applying the same process as for theatre tax relief to make claims under the new orchestra tax relief?

Question 15

Would the strategy outlined above be an appropriate way of preventing abuse of the new tax relief?

Question 16

Are there specific areas in addition to those mentioned above that create the opportunity for abuse?

10. Annex D: Planned timeline for consultation

3 December 2014 (Autumn Statement)	The government announced its intention to introduce a new tax relief for orchestras following consultation
23 January to 5 March 2015	The government commenced a formal 6 week consultation to test the proposal with the sector
Spring 2015	The government will set out further detail about the policy
Summer 2015	The government will work with the sector to ensure orchestras are well-informed about the relief and are in a position to take advantage of it once it becomes available
Autumn 2015	Draft legislation will be published
April 2016	The new relief will take effect

11. Annex E: The code of practice on consultation

This consultation is being conducted in line with the code of practice for written consultation, which sets down the following criteria:

• formal consultation should take place at a stage when there is scope to influence the policy outcome

• consultations should normally last for at least 12 weeks with consideration given to longer timescales where feasible and sensible

• consultation document should be clear about the consultation process, what is being proposed, the scope of influence and the expected costs and benefits of the proposals

• consultation exercises should be designed to be accessible to, and clearly targeted at, those people the exercise is intended to reach

• keeping the burden of consultation to a minimum is essential if consultations are to be effective and if consultees’ buy-in to the process is to be obtained

• consultation responses should be analysed carefully and clear feedback should be provided to participants following the consultation; and

• officials running consultations should seek guidance in how to run an effective consultation exercise and share what they have learned from the experience

If you feel that this consultation does not fulfil these criteria, please contact:

Consultation Coordinator
HM Revenue & Customs
100 Parliament Street
London
SW1A 2BQ

Or email: hmrc-consultation.co-ordinator@hmrc.gsi.gov.uk