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Michael Paul Accountants

Community Interest Companies

5th July 2016

At Michael Paul Accountants we have various clients who operate as a Community Interest Company (CIC).

What is a Community Interest Company?

A CIC is a relatively new type of company which bridges the gap between a normal commercial private limited company and a charity.

Whilst a commercial limited company trades with a view to making a profit a CIC instead undertakes activities to achieve a social or community purpose.  Examples of this would include promoting sporting activities or the running of a village hall.  The social or community purpose much satisfy what is known as the ‘community interest test’. The legislation states the test will be satisfied if a reasonable person might consider that its activities (or proposed activities) are carried on for the benefit of the community.

How is a Community Interest Company different from a normal limited company?

In some ways, a CIC is very similar to a normal limited company.  It must file accounts and an annual return at Companies House and is subject to Corporation Tax.  A CIC, however, must also file a Community Interest Report (CIC34) annually which will state the general description of the company’s activities and impact, how stakeholders have been consulted, details of any director’s remuneration and whether there were any transfers of assets for full consideration.

As well as having to trade for a social purpose the other big difference between a CIC and a commercial limited company is that it has a lock on its assets.  This means that all assets must be used for the community or social purpose and if sold this must be for an open market value and the funds used for the purpose.  If any assets are transferred this must be to another asset-lock company.

So what are the advantages of a CIC?  Why not just form a charity.

One of the main difference between a charity and a CIC is that CIC’s are a lot less heavily regulated and have more freedom and flexibility in their day to day running.  CIC’s are still regulated and must be registered with the CIC Regulator but the Government has indicated that it expects a “light touch” Regulator to encourage the development of the Community Interest Company (CIC) “brand” and provide guidance and assistance on matters relating to CICs.

A CIC can also take advantage of the limited liability status and (if limited by shares) pay dividends (although these will be subject to a dividend cap).  The CIC status gives comfort to any potential investors in knowing that the motives behind it are not based on profit and can often find it easier to secure funding than charities.

CIC’s, however, don’t benefit from the same tax advantages as charities.

Further information

Further information regarding CIC’s can be found at gov.uk.

 

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