NI crisis for UK orchestras

Orchestras panic over National Insurance bill that could top £30m

High profile media revelations that Britain?s orchestras may be required to pay an estimated £33m of backdated National Insurance (NI) payments have sent shock waves through the arts sector. A letter and email from the Association of British Orchestras (ABO), leaked to BBC1?s Politics Show and subsequently covered in the national press, suggest that as many as four fifths of Britain?s orchestras could become insolvent if Her Majesty?s Revenue and Customs (HMRC) pursues its claim that Class 1 NI contributions are payable on fees paid to freelance orchestral musicians since a change in NI rules was brought in in 1998. The rule-change was implemented, after intensive lobbying by the actors? union Equity, to ensure that the majority of ?entertainers? would be treated as employed earners for NI purposes, and thereby would build up an entitlement to Jobseekers Allowance. A further tightening of NI rules occurred in April 2003, and HMRC is now claiming that many orchestral musicians, along with the orchestras that hire them, are liable to pay Class 1 NI contributions on their fees.

The case hinges on whether or not orchestral musicians, who may be classified as freelance for income tax purposes, are considered under NI rules to be receiving ?salaries? from the orchestras they work for. Under the 2003 regulations, a salary is deemed to be paid whenever a musician is remunerated for services rendered under a ?contract for services?, receives payments at specified intervals, and is paid for the amount of time for which work was performed. Given the nature of many orchestral musicians? relationships with the orchestras they work for, ArtsProfessional columnist, accountant Mahmood Reza, believes that HMRC may have strong grounds for demanding NI back payments. He explained, ?The guidelines issued on this subject by HMRC suggest that members of orchestras and choruses who earn fees for a day?s rehearsal, or performing a specific concert, and are eligible for overtime payments if that concert overruns, are likely have to pay Class 1 NI contributions, regardless of how many orchestras they work for or how few concerts they perform for those orchestras. This means that, if the HMRC ruling is implemented, orchestras will be required to pay both employers? and employees? NI contributions for their freelance musicians dating back to April 2003, and in some cases as far back as 2000. They will also have to make a statutory interest payment for the amount underpaid, and could even be subject to penalties for late payment.?

The Association of British Orchestras (ABO) has issued a statement making clear the devastating impact that the back payment, plus £6m a year of ongoing additional costs, would have: ?This industry has never made such payments for its freelance musicians and was unaware of any such potential liability. Until recently, the Inland Revenue had not communicated to the sector that the payments could be due and several inspections have taken place that appear not to have identified any liability?The ABO is extremely concerned at the un-joined up thinking between the Treasury and Department for Culture, Media and Sport, which has seen one Department investing £35m in the sector whilst another appears to wish to remove it.? Acknowledging that significant NI bills could destroy many of the UK?s leading orchestras, a spokesperson from HMRC said, ?We have an excellent track record for agreeing ?time to pay? arrangements with our customers when they need it, ensuring that bankruptcy is rare.?