Orchestra relief elections, A1 delays, the cash basis default and an HMRC that has never heard of its own Foreign Entertainers Unit: Sinéad Pratschke looks at the tax issues currently testing the music industry.
The music industry is no stranger to tax complexity. Cross-border touring, withholding tax, variable cash flow, complex royalty structures and portfolio careers are all part of the landscape.
Here are four issues currently landing on my desk. Each, in its own way, highlights just how specialised this industry is – which is why I love it. But they also demonstrate the imperative that those supporting this industry understand the language of musicians and the language of tax in equal measure.
Orchestra Tax Relief
Let’s start with Orchestra Tax Relief (OTR), which has become a critical part of the funding cycle for orchestras up and down the country.
We know from discussions among Association of British Orchestras (ABO) members that enquiries into OTR claims are rising, and the concert series election is the contentious aspect. Under s.1217Q(4) CTA 2009, an orchestral production company (OPC) can elect to treat a series of concerts as a single separate trade. The election is irrevocable, and s.1217RA(5) CTA 2009 goes on to say that “a qualifying orchestral concert series means two or more orchestral concerts, all or a high proportion of which are qualifying orchestral concerts”.
But what does high proportion mean?
‘High proportion’ is not defined, and HMRC has not published a threshold. In practice, orchestra finance teams have often relied on industry understanding shaped by informal discussions with HMRC personnel when OTR was first introduced. Today’s HMRC officers are challenging series elections built on that historic practice, triggering a cash-flow crisis if the payable orchestra tax credit – effectively a funding lifeline – is now said to be invalid.
An indicative safe harbour would remove much of the dispute risk and settle the nerves of those in the orchestra business.
Further to that, there is uncertainty about whether it is the proportion itself that may invalidate a series election, or whether the problem is that individual concerts may be viewed as non-qualifying. An orchestral concert is defined in s.1217PA(1) CTA 2009 as “a concert by an orchestra, ensemble, group or band consisting wholly or mainly of instrumentalists who are the primary focus of the concert”.
But what does primary focus mean in practice?
Does that mean a concerto – star soloist plus orchestra – fails the test? Or what about an orchestra and choir, for example Beethoven’s Ninth Symphony with its extraordinary choral contribution at the end? These are exactly the kinds of boundary questions that create uncertainty for orchestra finance directors.
And, finally, a new conundrum has appeared. Co-productions are commonplace in film, but are becoming more common in the world of orchestral concert series and one-off concerts, too. The legislation says that: “No more than one company can be the production company in relation to a concert.” So only one co- producer can claim the payable orchestra tax credit, and only on its own core expenditure. That creates significant complexity in how co-production agreements are structured and how the costs and the benefit of the relief are shared.
A1 certificates
Musicians performing in the EU, the wider EEA and Switzerland rely on an A1 certificate (Portable Document A1) to show that they remain within the UK social security system, so that contributions are not also demanded in the host state.
HMRC’s processing times for A1 applications remain a problem. Delays still exist, despite significant improvements on the shocking backlog that existed at the end of 2025.
Overseas promoters increasingly refuse to release a fee until the certificate is in hand, because without it they may have to account for local social security contributions themselves. Long waits have left musicians and organisations facing either heavily delayed payment and the cash-flow issues that follow, or unnecessary social security deductions on their fees simply to enable payment by the promoter.
One pragmatic approach we have adopted in some cases is to apply for multiple single- engagement A1 certificates rather than the multi-state option, which in our experience can take longer to elicit a response. It means that, in some instances, over the course of a single year we may make 10 or more online applications for a single client.
Cash basis as the default
From the 2024/25 tax year, following Finance Act 2024, the cash basis has been the default method for calculating the profits of an unincorporated trade (s.24A ITTOIA 2005). It is hard not to see that as part of the wider push towards simpler reporting ahead of Making Tax Digital. So far, so well intentioned.
In practice, electing out of the cash basis is a simple tick box on the SA103 that many unrepresented musicians will not even know exists. They certainly will not be aware of the consequences of not ticking it.
Creative averaging relief
One possible consequence of drifting into the default cash basis is the loss of creative averaging relief. We regularly suggest this relief to our composer and songwriter clients.
These musicians, more so than many performing clients, can find themselves with a welcome but unexpected windfall – a commission fee, an advance, or a spike in PRS and MCPS royalties.
Averaging can spread those profits across two years, making the resulting tax bill more manageable.
A musician who has drifted into the default cash basis is highly unlikely to anticipate the problems that this default may create further down the line.
Capital expenditure
Valuable musical instruments highlight another important limitation of the cash basis for musicians. Under the accruals basis, a musical instrument used in the trade will normally qualify as plant and machinery, so its cost should qualify for capital allowances, often with full relief through the annual investment allowance if the usual conditions are met. On disposal, the capital allowances disposal value is capped at original cost (s.62 CAA 2001), so although the allowances already given are clawed back (as these instruments tend not to depreciate), any appreciation in value is not taxed as income.
Any excess over cost may instead fall within the chargeable gains rules.
Under the cash basis, however, capital expenditure on an asset that is not a ‘depreciating asset’ is not deductible at all (s.33A ITTOIA 2005), and capital allowances cannot be claimed instead while the cash basis applies (s.1A CAA 2001). So, for example, a high- value instrument expected to last well beyond 20 years and with a realistic prospect of retaining or increasing its value may leave the musician with no relief for its cost while it is held.
If it does happen to meet the criteria as a depreciating asset, the cost is deducted, but the disposal proceeds are taxed as trading receipts (s.96A ITTOIA 2005), with any appreciation in value taxed as income rather than under the capital gains tax regime.
For musicians with valuable long-life instruments, the cash basis can therefore be materially less favourable than the accruals basis, but the simple tick box on the SA103 belies this.
The Foreign Entertainers Unit
The Foreign Entertainers Unit (FEU) administers HMRC’s withholding regime for non-UK resident entertainers and sportspeople performing in the UK under the Income Tax (Entertainers and Sportsmen) Regulations 1987 (SI 1987/530).
Where withholding is required, the payer deducts income tax at the basic rate and accounts for it to HMRC. The tax withheld is credited against the performer’s own UK tax liability and is not usually the final amount due.
That much ought to be understood inside HMRC. But we are seeing compliance officers who are unaware that the FEU scheme exists or how it operates.
In one recent case, an officer reissued a performer’s tax computation disallowing credit for FEU tax that had already been withheld at source and paid over, leaving the client facing a bill for tax HMRC already held, together with a letter stating that an error had been made on the tax return – not a great outcome for the client or adviser.
In fact, the officer had conflated payments on account, which had also been made, with the tax withheld under the FEU scheme, and believed they were one and the same. When we contacted her, she admitted that she had never heard of the FEU and would have to ask her manager.
In her defence, she corrected the tax computation back to its original position very quickly.
Conclusion
Uncertainty around OTR series elections, delays with A1 certificates, the unintended consequences of the cash basis default and HMRC’s inconsistent handling of the FEU regime are all, at heart, problems of guidance, capacity and awareness. Taken together, they show how easily administrative and technical tax rules can disrupt cash flow in the music sector, and why specialist advice remains essential.
- Sinéad Pratschke is the founder of Musicians’ Tax Advisor