Written evidence submitted by the Incorporated Society of Musicians
• This is a submission produced by Incorporated Society of Musicians (ISM) responding to the Treasury Committee ‘Tax after coronavirus’ inquiry. This submission responds directly to the question in the Terms of Reference on the role of tax reliefs in rebuilding the economy and promoting economic growth and efficiency.
• The ISM is the UK’s oldest professional representative body for musicians, set up in 1882 to promote the art of music and to protect the interests of all those working in the music sector. The ISM’s membership comprises over 10,000 members and over 150 organisations working in every part of the profession. We support our members with legal services and advice, insurances, professional development and guidance in their work as a musician.
What is the role of tax reliefs in rebuilding the economy and promoting economic growth and efficiency? Does the current regime of tax reliefs perform this role well?
a) Economic and cultural value of the UK’s creative industries
- Creative industries are hugely successful, generating over £111bn for the UK economy. The sector has grown twice as fast as the UK economy as a whole over the last decade, and is part of a bigger creative economy, employing over three million people and generating value throughout supply chains.
- Music is a key component of our fantastic creative industries, contributing £5.2 billion to the economy, generating £2.7 billion in export revenue and sustaining over 191,000 full-time jobs. Music also plays a vital role in the UK’s soft power, which is currently ranked second in the Portland Soft Power 30 Index (2019). The UK boasts an impressive music scene that affords us a prominent cultural platform on the world stage.
- At a local level, arts and culture play an important role in the lives of people, communities and places. Music venues and local music activity help create desirable places for people to live, by building stronger communities and fostering community cohesion. Various research studies have also highlighted the local economic impact of arts and culture, including references to financial return on investment and regional economic performance.
b) Impact of coronavirus
- COVID-19 has devastated music and the performing arts, with large parts of the workforce losing huge amounts of work following the closure of concerts, theatres, festivals, and recording studios.
- Widespread venue closures have caused huge financial difficulties for music organisations and businesses, particularly live music venues and festivals, which have lost almost an entire year of trade. Many independent music venues have shut indefinitely, which not only affects staff working there but also depriving self-employed musicians of potential future work at a time of acute financial vulnerability.
- The Office for National Statistics found that the arts, entertainment & recreation is the sector worst affected by coronavirus. Music, performing and visual arts are projected to lose £11 billion in revenue (-54%) and 57% of jobs (178,000). Creative industries are projected to be hit twice as hard as the wider economy overall and up to three times as hard regionally. 
c) Financial support package for the arts
- On 6 July the government announced a £1.57 billion financial support package for the arts to help the sector recover from the substantial damage caused by COVID-19. Additional financial support for cultural organisations is essential to aid the recovery and revitalisation of the music industry ecosystem and was generally welcomed by the creative sector after months of lobbying by organisations and businesses. However, until music venues can fully reopen, and the money can move through the supply chain, those working in the music sector who are predominantly self-employed will not benefit.
- With the Coronavirus Job Retention Scheme and the Self Employment Income Support Scheme ending shortly, many musicians are facing a cliff-edge drop in income. The ISM is calling on the government to extend financial support for freelancers working in the performing arts and entertainment industries until venues can fully reopen. In August the ISM coordinated a letter to the Chancellor signed by over 120 organisations from across the creative sector.
2. Creative sector tax reliefs
• Other fiscal measures should be explored as part of a wider support package to alleviate the financial pressures facing the creative sector. In the UK, Creative Industries Tax Reliefs are a growing suite of special company tax reliefs that are similar in form to Research & Development tax relief. They cover:
- high-end television
- children’s television
- animation television
- video games
- theatrical productions
- orchestral concerts
- The Orchestra Tax Relief (OTR) was announced at the 2014 Autumn Statement and was introduced on 1 April 2016. The ISM was supportive of the introduction of the OTR and produced an explanatory webinar on who is eligible. Following lobbying by the ISM, the minimum collaborative size entitled for tax relief was lowered from 14 to 12. ISM Chief Executive Deborah Annetts said at the time:
“We are absolutely delighted that the Government have listened to the sector - notably the lobbying of the Association of British Orchestras (ABO) - and pressed ahead with this important tax relief which will be worth millions to the orchestral sector.
“We are particularly delighted that the Government listened so carefully during its consultation period, reducing the minimum ensemble size eligible for tax relief from 14 to 12 musicians, and only requiring a minimum of one orchestral instrument to be included rather than four, allowing larger string groups, and wind and brass bands to be covered.” [Note: Initially, these had been excluded.]
“We hope in due course the relief will be expanded to include choral groups, smaller acoustic ensembles and the production of new music”.
- In 2018-19, a total of £1.1 billion was paid out across all of the Creative Industries tax reliefs. This is an increase from £0.9 billion in 2017-18.
- Theatre Tax Relief: In 2018-19, £78 million of Theatre tax relief (TTR) was paid out relating to 930 claims. Since TTR was introduced in 2014, £208 million has been paid out relating to 2,520 claims, which represents 8,395 productions.
- Orchestra Tax Relief: In 2018-19, £16 million of Orchestra tax relief (OTR) was paid out relating to 120 claims, representing 555 productions. Since OTR was introduced in 2016, £23 million has been paid out relating to 170 claims and 770 productions.
- In 2019 MPs on the Culture Media and Sport Select Committee called on the government to extend the tax relief already given for orchestra performances to other forms of music production such as urban music and grime, in a bid to slow closures of venues and support live music.
- We believe that now is the time for Creative Industries Tax Reliefs to be refreshed given the current financial challenges facing the music sector because of COVID-19. We also suggest that two related tax reliefs could be explored, which could give a significant boost to the sector.
(a) Live Music Tax Relief
- We propose a new Live Music Tax Relief, which would follow the regulatory elements of the Theatre Tax Relief. The Tax Relief would cover the production costs of musical performances (commission fees for new music, production costs for a new presentation of existing works, music hire, copyright licences). A higher rate of tax relief could also apply to touring as per the Theatre Tax Relief.
- There will need to be further discussion with the Treasury in relation to whether or not rehearsal costs and the cost of venue hire can be defined as production costs. Ordinary running costs are not included in the Theatre Tax Relief.
- Whilst the production costs (and therefore expenditure eligible for tax relief) would be relatively low for a standard orchestral concert, the tax relief would have a bigger impact on the commissioning of new music, and new presentations of existing works. The tax relief would be particularly beneficial to orchestral tours comprising the performance of new works or new presentations of existing works. As with the Theatre Tax Relief, a higher rate of relief would apply to touring productions as opposed to non-touring productions:
- Non-touring productions - 20% (16% net)
- Touring productions - 25% (20% net)
(b) New Works and New Tours Tax Relief.
- We also propose a new works and touring tax relief, which would follow the regulatory elements of the Theatre Tax Relief. This would cover the production costs (as per the Theatre Tax Relief) of i) new presentations of existing music and ii) performances of new works the tax relief the tax relief would cover new music (as per the MPA proposal) and support orchestral concerts.
- This would follow the principles of the Theatre Tax Relief. The tax relief would apply to production costs; it is not yet determined whether this will cover rehearsal costs. There will need to be a discussion with HMRC in relation to whether or not these will be covered as production costs. We envisage that it will cover commissioning, costs put towards a new presentation of works, hire costs of music, copyright licensing and other associated production costs. The new works and new tours tax relief will cover the following three elements:
- new presentations of existing musical works and performances of new works in a single venue (20%, 16% net);
- touring productions of new presentations of existing musical works and performances of new works (25%, 20% net).