If you want to run a business that benefits your community but you are not sure whether to set up a charity or a company, a Community Interest Company could be exactly what you are looking for. This blog explains what a CIC is, how it works, and whether it is the right structure for you, based entirely on guidance from GOV.UK and the Office of the Regulator of Community Interest Companies.
What Is a Community Interest Company?
A Community Interest Company, known as a CIC, is a type of limited company designed for people who want to run a business for the benefit of a community rather than for private profit. It was introduced by the UK government in 2005 under the Companies (Audit, Investigations and Community Enterprise) Act 2004.
A CIC operates in the same way as any other limited company. It has a separate legal identity, can enter into contracts, own assets, employ staff, and borrow money in its own name. The key difference is that a CIC has additional legal safeguards built in to make sure its assets and activities are used for the benefit of the community it was set up to serve.
CICs are regulated by the Office of the Regulator of Community Interest Companies and registered at Companies House.
What Kind of Organisations Set Up as a CIC?
CICs are used by a wide range of social enterprises and community organisations. Examples include:
- Community cafes where profits fund local projects
- Social care and welfare services for vulnerable people
- Youth clubs, sports clubs, and arts organisations
- Training and employment programmes
- Environmental and sustainability projects
- Health and wellbeing services
The common thread is that the organisation earns income through trading or delivering services, and uses that income to benefit a defined community rather than to enrich private individuals.
What Is the Community Interest Test?
To become a CIC, your organisation must satisfy the community interest test. This means the CIC Regulator must be satisfied that a reasonable person would consider your activities to be carried on for the benefit of the community. This test does not just apply when you set up. Your CIC must continue to meet it throughout its life.
The concept of community is broad. It can mean the general public, the residents of a particular area, or a specific group of people who share a common disadvantage or characteristic.
What Is the Asset Lock?
Every CIC has a compulsory asset lock. This is a legal safeguard that prevents the assets of the CIC, including any profits, from being used for private gain. The asset lock ensures that everything the CIC owns or earns stays within the CIC and is used for community benefit.
Assets can only leave a CIC in the following ways:
- Transferred for full market value, so the CIC retains the equivalent in cash or other assets
- Transferred to another asset-locked body named in the CIC’s articles of association, such as a charity or another CIC
- Transferred to another asset-locked body with the consent of the Regulator
- Used to meet normal trading and business obligations
CIC vs Charity: What Is the Difference?
This is the most common question people ask before setting up a social enterprise. Here is a straightforward comparison:
| CIC | Registered Charity | |
|---|---|---|
| Regulated by | CIC Regulator and Companies House | Charity Commission and Companies House |
| Corporation tax | Pays corporation tax like any company | Exempt from most corporation tax |
| Gift Aid | Cannot claim Gift Aid | Can claim Gift Aid on donations |
| Trading flexibility | High, can trade commercially without restriction | More limited trading restrictions apply |
| Director pay | Directors can be paid | Trustees generally unpaid unless constitution allows |
| Dividends | Allowed but capped (limited by shares only) | Not permitted |
| Setup speed | Quicker to set up than a charity | Longer registration process |
| Annual compliance | Annual accounts plus CIC34 report | Annual accounts plus Charity Commission reporting |
Can CIC Directors Be Paid?
Yes. CIC directors can receive pay and expenses, unlike charity trustees who are generally unpaid. However, director pay in a CIC is still subject to regulation. The community interest test and the asset lock apply to director remuneration just as they do to any other use of the CIC’s assets. If a CIC pays its directors more than their work is genuinely worth to the organisation and the community, this could be considered a breach of the asset lock.
Can a CIC Pay Dividends?
CICs that are limited by shares can pay dividends to shareholders, but these are subject to a strict dividend cap set by the CIC Regulator:
- The maximum dividend per share is 5% above the Bank of England base rate on the paid-up value of the share
- The maximum total dividend paid out in any year is 35% of distributable profits
- Unused dividend capacity can be carried forward for up to 5 years
CICs that are limited by guarantee do not have shareholders and therefore cannot pay dividends.
Does a CIC Pay Tax?
Yes. A CIC pays corporation tax on its trading profits and investment income in exactly the same way as any other limited company. It does not benefit from the tax exemptions that registered charities enjoy. This is one of the most important practical differences between a CIC and a charity, and it is something to factor in carefully when choosing your structure.
Is a CIC Right for You?
A CIC is likely to be the right choice if:
- You want to run a sustainable social enterprise that earns income through trading
- You want the flexibility to pay yourself and your team as directors
- You want a simpler structure than a charity with less regulatory burden
- You want to attract investment through shares while still protecting community benefit
- You want a recognised brand that signals social purpose to funders and the public
A CIC is probably not the right choice if your main income will come from public donations and you need Gift Aid, or if tax exemptions are central to your financial model.
