CIC or charity?
An organisation can't be both: a CIC can't be a charity. Here's how they differ.
| Community interest company (CIC) | Charity (for example a CIO) | |
|---|---|---|
| What it's for | Activities a reasonable person might consider are for the benefit of the community | Only purposes the law recognises as charitable, for the public benefit |
| Regulator | The CIC Regulator, plus Companies House | The Charity Commission (a charitable company also files at Companies House) |
| Asset lock | Compulsory and permanent. Assets and profits must be used for the community. Assets can be sold at full market value; transfers for less are limited to other asset-locked bodies, such as a charity or CIC, or to benefit the community, with Regulator consent where needed | Assets can only be used for the charity's purposes |
| Paying the people in charge | Directors can be paid, if it's reasonable and transparent | Trustees are normally unpaid. Payment needs a power or Commission authority and strict conditions |
| Dividends | A CIC limited by shares with Schedule 3 articles can pay private investors, with total dividends capped at 35% of profits. Schedule 2 articles allow dividends only to asset-locked bodies. None for a CIC limited by guarantee | None: income and property can only be used for the charity's purposes |
| Gift Aid and charity tax reliefs | No. The Regulator says CICs have "no tax advantages" | Yes, once recognised by HMRC: Gift Aid on eligible donations, plus charity tax exemptions |
| Grants from charitable trusts | Possible, if the trust's rules allow and the money goes on charitable activity | Yes, subject to each funder's criteria |
| Application and incorporation fees | £115 online at Companies House (£139 on paper) | No application fee is listed in the Commission's guidance. A charitable company pays £100 online to incorporate (£124 on paper, which it must use to leave "Limited" out of its name) |
| People | Can be a single-member company. Directors and people with significant control verify their identity with Companies House (free through GOV.UK One Login) | Follow the governing document. The Commission recommends at least three unconnected, unrelated trustees |
| Every year | Company accounts, a CIC report (CIC34) and a confirmation statement (£50 online) | CIO: annual return, accounts and report to the Commission, whatever its income |
| Political activity | Political parties, political campaigning organisations and their subsidiaries can't be CICs, and some political activities are excluded | Can't campaign for a change in government |
| Changing your mind | Can convert to a charity or CIO. Can't become an ordinary company | A charity's structure can usually be changed, though it can be complex |
Reasons to consider a CIC
- you want to be paid as a director for running it
- you'll mainly trade, for example the Regulator's illustration of a café whose profits benefit the community (charities can trade too, within strict rules)
- you want outside investors who can receive a capped dividend (a CIC limited by shares, with Schedule 3 articles)
- your aims benefit a community but may not fit a charitable purpose
Reasons to consider a charity
Only if every purpose is charitable and for the public benefit.
- you'll rely on donations and want Gift Aid on eligible gifts (at the 20% basic rate, 25p for each £1)
- you'll apply to grant-makers who fund only charities
- you want the tax exemptions and reduced business rates charities get
- you're happy for the board to be volunteers
Common mistakes
- Setting up a CIC, then expecting charity tax treatment. Gift Aid is for charities and community amateur sports clubs. A CIC can still apply to charitable funders whose rules allow it, for charitable activity.
- Setting up a charity mainly to pay yourself. A founder who is also a trustee can only be paid in limited, authorised circumstances. Paying yourself from a charity.
- Forgetting the asset lock is permanent. The Regulator says take professional advice before forming a CIC, because the only ways out are dissolving or converting to a charity.
Employing a founder
A charity can employ its founder if the trustees decide independently, in the charity's best interests, after a fair recruitment. If the founder resigns as a trustee to take the job, or took part as a trustee in decisions about it, the charity needs a clear power in its governing document or the Commission's authority. The application asks about employing a founder and wants the minutes of the decision.
What a CIC needs to start
- a community interest statement explaining what it will do
- articles with the asset lock (the Regulator publishes models)
- an application through Companies House, online (£115) or by post, which goes to the Regulator for approval