How To Write An Orchestra Tax Relief

Transcription

1 Association of Accounting Technicians response to Orchestra tax relief 1

2 Association of Accounting Technicians response to Orchestra tax relief 1. Executive Summary 1.1. The Association of Accounting Technicians (AAT) is pleased to have the opportunity to respond to the consultation paper Orchestra tax relief (condoc), released on 23 January AAT is submitting this response on behalf of our membership and from the wider public benefit perspective of achieving sound and effective administration of taxes and therefore commented on operation aspects AAT notes the aim of this proposal which is outlined in the Foreword (0.1, condoc) which states, 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 AAT is generally supportive of the proposed operational aspects of the Orchestra Tax Relief (OTR) AAT has made three recommendations that: the Treasury be required to undertake a follow up exercise to establish how many orchestras were able to access OTR (2.2, below) the situation should be monitored and if, say in a year s time, it is found that orchestras are unable to access the higher rate of OTR then this requirement be reviewed (2.17, below) HMRC provides clear guidance to orchestras on how to assess and monitor the 100% aid intensity requirement (2.19, below) In order for orchestras to effectively access OTR they will need to be made aware of the existence of this relief. Therefore, this initiative will need to be publicised to orchestras and backed up by appropriate guidance. 2. AAT response to the consultation paper Orchestra tax relief 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 AAT agrees with the proposed criteria for assessing the options to provide support to the orchestral sector outlined in the Principles and criteria section (2, condoc) OTR needs to be effective and a measure of effectiveness is whether or not orchestras are able to easily access the relief. Therefore, AAT would recommend that the Treasury should undertake a follow up exercise to establish how many orchestras were able to successfully access OTR in the period post implementation In addition to the above in order for OTR to be effective it must also be simple and straightforward to administer as stated in the Principles and criteria section (2, condoc). 2

3 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 (see below, extract from 3.3, condoc)? 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 2.4. Adopting the definition outlined above is unlikely to be an effective way of meeting the government s objective as the following proposed key features do not meet the criteria of being simple and straightforward (2.3, above and 2, condoc) for the following reasons: AAT considers that it will be difficult to differentiate between creative and production costs from day-to-day running costs, and it will require additional administration. This will require a change in accounting procedures in order to correctly identify and allocate costs to the correct cost centres. 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 AAT is of the view that applying different rates will cause additional complication It is AAT s understanding from para 3.1 (condoc) that OTR was to be a deduction from Corporation Tax therefore it starts to add complexity to have performances that qualify and those that do not in order 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. 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 AAT is refraining from commenting on the combination of instruments that should be included as we see it as a matter of government policy. Nevertheless, the definition (3.3, condoc) appears to be in keeping with the government s aim, outlined in the Foreword (0.1, condoc). A key aspect of the proposals that will ensure their success is that they will need to be underpinned by clear guidance (see also 1.6, above). 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 2.6. As previously stated in 2.5 (above) the definition (3.3, condoc) appears to be in keeping with the government s aim outlined in the Foreword (0.1, condoc) From an operational perspective there needs to be clarity. AAT is concerned that the proposed definition appears to be contradictory as it should support orchestras performing modern and innovative, as well as more traditional, musical pieces (3.2, 3

4 condoc) but not non-orchestral music, such as pop and rock (3.3, condoc), as it could be perceived that pop and rock music is modern and innovative While the proposed definition may exclude some orchestras who believe that they should be included, for example orchestras that play pop and rock (3.3, condoc) AAT considers the qualification rules to be a matter of government policy. 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? 2.9. As previously observed (1.4 & 2.7, above) AAT s response is in respect of the operational aspect of OTR rather than issues of government policy. Therefore, on the basis that the decision to exclude certain genres of music is a matter of government policy AAT is refraining from commenting on this question. After the exclusions have been decided upon then the operation of OTR will be better supported by clear and consistent guidance which supports the point being made above in response to Q3. 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 While AAT can fully appreciate the importance of this question, on the basis that AAT does not have specific technical knowledge in respect of the trading structures of orchestras AAT declines to answer this particular question, other than to comment that is obviously a key element of the proposal. Therefore, it is AAT s recommendation that if there is any doubt over whether the requirement to incorporate is entirely appropriate a period of additional consultation focused on this narrow aspect should be entered into. Question 7 Are there any other difficulties which might arise from the requirement to be incorporated that the government should take into account? Please refer to the response given to question 6 (above). Question 8 Which costs are integral to the creative process itself and should therefore be eligible for relief? Please explain your choices While AAT does not have specific technical knowledge of accounting for orchestras however, as previously stated in 2.3 (above) AAT considers that it will be difficult to differentiate between creative and production costs from day-to-day running costs, which will make OTR complicated and militate against the stated aim of making it simple and straightforward to administer Taking into account the observation in 2.12 (above) AAT recommends that if there is to be a further period of consultation focused on narrow aspects arising from this initial consultation the integral-costs should be taken into its ambit (see also 2.10, above). 4

5 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? While, of course, there could be a whole plethora of alternative rules such as allowing all costs which are not geared to orchestral performances, some of which might be simpler to apply but these may not achieve the proposed key feature (3.1, condoc) whereby tax relief will be available for the creative and production costs of live orchestral performances, AAT considers those outlined under 3.1 & 3.5 (condoc) are appropriate. 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 Grouping performances into accounting periods is reasonable in terms of administration by the orchestra and it would be beneficial to HMRC for their monitoring purposes. However, some orchestras, like the example given in Annex A, that are running at a loss may want to access OTR on a more frequent basis and half-yearly surrender should be considered. Question 11 Are there any other specific design points which need to be addressed? AAT has not identified any additional specific design-points that it considers will need to be taken into account. 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 AAT notes that the government proposes, 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 (3.7, condoc). While AAT does not wish to propose an alternative definition it is AAT s recommendation that the situation should be monitored and if say, in a year s time, it is found that orchestras are unable to access the higher rate of OTR then this requirement be reviewed The course of action proposed in 2.17 (above) could be taken into account in the follow up action recommended in 2.2 (above). 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 AAT notes the EU requirement (4.2, condoc) that aid intensity should not exceed 100% of eligible costs. AAT would recommend that HMRC provides clear guidance to orchestras on how to assess and monitor the compliance requirement in order to avoid the situation where the aid is clawed back for a period of up to ten years (4.2, condoc). 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? AAT is not aware of any issues for the orchestral sector in applying the same process as for theatre tax relief in order to make claims under the new OTR. The main issue for orchestras will be them being made aware of OTR and being given guidance and 5

6 support from HMRC in order to become familiar with the requirements in order to effectively access OTR. Question 15 Would the strategy outlined above be an appropriate way of preventing abuse of the new tax relief? The strategy outlined ( , condoc) is an appropriate way of trying to prevent abuse of OTR. Nevertheless, AAT would expect HMRC to monitor the take up of OTR and we would expect the department to, quite correctly, challenge any unforeseen abuse. Question 16 Are there specific areas in addition to those mentioned above that create the opportunity for abuse? AAT has not identified any addition areas that create the opportunity for abuse. 3. Conclusion 3.1. AAT is generally supportive, at this stage, of the operational aspects of OTR AAT has recommended that: the Treasury be required to undertake a follow up exercise to establish how many orchestras were able to access OTR (2.2, above) the situation should be monitored and if say, in a year s time, it is found that orchestras are unable to access the higher rate of OTR then this requirement should be reviewed (2.17, above) HMRC provides clear guidance to orchestras on how to assess and monitor the 100% aid intensity requirement (2.19, above) HMRC is generally very good at providing help and guidance to taxpayers (individuals and businesses) and in order for orchestras to effectively access OTR they will need to be made aware of OTR and receive appropriate guidance. 4. About AAT 4.1. AAT is a professional accountancy body with over 49,800 full and fellow members and 83,700 student and affiliate members worldwide. Of the full and fellow members, there are over 4,100 Members in Practice who provide accountancy and taxation services to individuals, not-for-profit organisations and the full range of business types (figures correct as at 31 December 2014) AAT is a registered charity whose objectives are to advance public education and promote the study of the practice, theory and techniques of accountancy and the prevention of crime and promotion of the sound administration of the law Thank you for the opportunity to respond to the consultation on Orchestra tax relief. 6

7 5. Further information If you have any questions or would like to discuss any of the points in more detail then please contact AAT at: and telephone: Aleem Islan Association of Accounting Technicians 140 Aldersgate Street London EC1A 4HY 7