A community interest company (CIC) is a limited company built for social purpose: it trades like any business, but a statutory asset lock stops its assets and profits leaking to private owners, and a regulator checks — at formation and annually — that it genuinely benefits the community. Over 37,000 CICs now sit on the register, with incorporations running at record levels, because the form solves a real problem: it lets social entrepreneurs run a business-shaped organisation without becoming a charity, with all the governance weight that carries. What it does not do — and this surprises founders constantly — is bring any of a charity's tax advantages.
Here is how CICs work, what they cost in tax, and how to choose between a CIC and the alternatives.
What makes a CIC a CIC
Structurally it is an ordinary company — limited by shares or by guarantee — with three additions:
- The community interest test: at formation you file a statement (form CIC36) explaining who the company serves and how, and the CIC Regulator must be satisfied a reasonable person would see the activities as benefiting the community — not just members or employees;
- The asset lock: assets must be used for the community purpose — ordinary sales at full market value are fine, but transfers at undervalue and distributions are restricted, and on dissolution residual assets can only pass to another asset-locked body (a named CIC or charity). This is the credibility feature — funders and councils trust CICs because the lock is statutory, not a promise;
- The annual CIC34 report: filed with the accounts, describing what the company actually did for its community, stakeholder involvement and any director pay — public, and read more often than filers assume.
For CICs limited by shares, profit distribution is capped: dividends to private shareholders are limited to an aggregate 35% of distributable profits, and performance-related interest on loans to 20% of the average outstanding loan (a different base from the dividend cap) — enough to reward investors modestly, structurally incapable of turning the company into a disguised profit vehicle. Reasonable director pay is an expense, not a distribution, and sits outside both caps. Guarantee CICs, the majority, distribute nothing and reinvest everything.
The tax position: a company, not a charity
This is the section to read twice. A CIC pays corporation tax on its profits in full — the community purpose earns no exemption. Donations to a CIC do not attract Gift Aid. Business rates relief is discretionary at the council's whim, not the mandatory 80% charities get. There is no special VAT status. The CIC brand buys trust and grant-eligibility; it buys precisely nothing from HMRC.
Sensible mitigations exist within ordinary tax law: profits donated by a CIC to a charity are deductible; a common architecture pairs a charity (holding the tax reliefs and Gift Aid-able fundraising) with a CIC trading subsidiary or sister vehicle doing the commercial work; and normal reliefs — R&D, capital allowances, employment allowance — apply as they would to any company. But a founder choosing a CIC "for the tax benefits" has been sold a misunderstanding, and we meet several every year.
CIC or charity — or neither?
The honest comparison comes down to control versus tax:
- Choose a CIC where founders want to be paid directors who control the organisation (charity trustees are generally unpaid and cannot be dominated by beneficiaries of the payroll), where the model is trading rather than donation-funded, and where speed and light-touch regulation matter — a CIC incorporates in days for £115 online, against a charity registration process measured in months;
- Choose a charity where the funding model depends on Gift Aid, grant funders that require charitable status, mandatory rates relief, or the tax exemptions on surpluses — and where independent trustee governance is acceptable;
- Choose an ordinary company where the social mission is real but flexibility matters more than the lock — remembering the lock is exactly what some funders are paying for.
Conversion routes exist but are asymmetric: a CIC can become a charitable company or CIO with the Charity Commission satisfied of its charitable status, while a charitable company can convert to a CIC only with the Charity Commission's written consent — and its existing assets remain impressed with a trust for the original charitable purposes even after conversion. The choice is not forever, but unwinding is enough work that getting it right first is better.
Running one well
A CIC's compliance calendar is a company's plus the extras: Companies House accounts and confirmation statement, corporation tax returns, payroll and VAT as applicable, plus the CIC34 community report and the discipline of the asset lock in every transaction with directors and connected parties (sales at undervalue to founders are precisely what the Regulator polices). The recurring failure we see is treating the CIC34 as a formality — thin reports invite Regulator correspondence, and funders read them as evidence of whether the mission is real.
Where CICs get into governance trouble, it is usually the built-in tension: directors who are also the main earners, approving their own pay inside an asset-locked vehicle. Benchmarked remuneration, minuted decisions and clean related-party disclosures keep that tension defensible.
Acumon acts for CICs and social enterprises across formation choices, accounts, corporation tax and the CIC34 cycle — see our CIC accounts service, with charity audit and charity accounts teams covering the dual charity-plus-CIC structures. If you are choosing a vehicle for a social venture, the structure conversation costs an hour and prevents years of the wrong one.