OTR70040 - Orchestra Tax Relief: calculation: additional deduction

S1217RE Corporation Tax Act 2009

An Orchestral Production Company (OPC) entitled to Orchestra Tax Relief (OTR) can claim an additional deduction in computing the taxable profits of the separate orchestral trade for a concert or series.

The effect of the additional deduction is to increase the level of expenditure for tax purposes.  This may decrease the taxable profit of the separate orchestral trade and therefore the amount of Corporation Tax which would otherwise be payable.  It may also create or increase a loss in the separate orchestral trade, some or all of which may be available to surrender for an Orchestra Tax Credit (OTC).

Example: production completed in a single period

An OPC undertakes a qualifying series for £1m, all of which is UK core expenditure.  It receives £2m from exploitation of the series and therefore generates a profit of £1m on which it would normally pay Corporation Tax.  The company is subject to Corporation Tax at a rate of 25%.  The series is within a single accounting period.

Expenditure on the production is eligible for OTR. The OPC is entitled to an additional deduction in computing its taxable profits/losses from the separate orchestral trade for the series.  Since all of the core expenditure is UK expenditure, the additional deduction is calculated by reference to 80% of the total core expenditure.

Income

£2m

Expenditure

(£1m)

Trading profit before OTR

 £1m

Orchestra Tax Relief - additional deduction
(80% x £1m total core expenditure)

(£800K)

Trading profit after OTR

£200k

Without OTR, the OPC would have been liable to pay Corporation Tax of £250,000 (25% corporation tax rate x the pre-OTR profit of £1m).

The additional deduction claimed under OTR reduces the Corporation Tax liability to £50,000 (25% corporation tax rate x the post-OTR profit of £200k).  The benefit of the OTR claim to the company is therefore £200,000 (£250,000 - £50,000).

In this example, the OTR is worth 20% of the total core expenditure.


European expenditure

Prior to 1 April 2024, European expenditure was used instead of UK expenditure. Please see OTR60050 and OTR60070 for details.