The City of Birmingham Symphony Orchestra could face possible bankruptcy because of a little-known change in tax law made seven years ago.
It means the orchestra not only faces a six-figure increase in future tax bills but is bracing itself for further demands for arrears dating back to 2000-1.
If the arrears, amounting to an estimated £33 million across all Britain's orchestras, are implemented in full it is feared that 80 per cent of them will disappear.
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And HM Revenue and Customs (HMRC) has admitted that four out of five of orchestras it studied would be made insolvent by the tax claim although the CBSO last night refused to reveal if it was one of them.
Discussions have been taking place between the Association of British Orchestras (ABO), HMRC, the Department of Culture, Media and Sport (DCMS) and the Arts Council in an attempt to resolve the crisis, which arose from changes to the way in which National Insurance contributions are paid for freelance entertainers.
This followed lobbying by Equity, the actors' union, which wanted its members to be able to claim the Jobseekers Allowance during prolonged periods of unemployment.
The change was framed to include all categories of entertainers, including freelance musicians, even though their different patterns of employment normally prevent them claiming benefit. It means orchestras are required to pay Class 1 National Insurance contributions, the same as for full-time employees, when employing freelances.
However, HMRC failed to alert orchestras to their new liability or to enforce it until an audit of an individual orchestra revealed that the additional payments were not being made.
Following the change in law, the finances of the CBSO along with the London Symphony Orchestra, the Orchestra of the Age of Enlightenment and the orchestras of English Touring Opera and Welsh National Opera where all studied by HMRC with just one of the five found to be robust enough to absorb the increased payments.
Yesterday Stephen Maddock, chief executive of the CBSO, declined to say whether or not it would be one of them.
Another affected orchestra is the Royal Ballet Sinfonia, resident orchestra of Birmingham Royal Ballet. Like the CBSO, it employs most of its musicians on a full-time basis, but also uses freelances when required. For Stravinsky's Rite of Spring in June the orchestra was almost doubled in size.
A spokesman for HMRC said: "We do not believe that any orchestras will need to close. HMRC officials are in discussions with representatives of the orchestras to agree the best way forward."
