CIC vs Charity: Which Structure Fits, and What Each One Costs You in Tax

If you are setting up a social-purpose organisation in England and Wales, the choice between a community interest company (CIC) and a charity is one of the most consequential decisions you will make. The two structures look similar from the outside but they sit in entirely different legal and tax regimes. This guide sets out exactly where they differ so you can make the call with the full picture in front of you.

The short answer

Choose a charity if public fundraising, Gift Aid and rates relief are central to how you will operate. Choose a CIC if you want to pay founders and directors commercial rates without Charity Commission oversight, plan to earn most of your income from trading, or need a simpler formation process. The tax cost of the CIC route is real and recurring: no Gift Aid means every £1 you raise stays at £1; no charitable rate relief means full business rates on any property you occupy.

What a CIC is, and what a charity is

A community interest company is a type of limited company designed for social enterprise. It files at Companies House and submits a community interest statement confirming its activities benefit the community. It is regulated by the Office of the Regulator of Community Interest Companies, which sits within Companies House. For a deeper account of how CICs work, see the CIC complete guide.

A charity is an organisation established for charitable purposes for the public benefit, regulated by the Charity Commission for England and Wales. It must register with the Commission once income exceeds £5,000 per year (a CIO must register whatever its income). Charitable status is what triggers the package of tax reliefs that makes public fundraising financially efficient.

The regulator split

The two structures answer to entirely different regulators, which shapes every compliance obligation they carry.

Point	CIC	Charity
Primary regulator	Office of the Regulator of CICs (at Companies House)	Charity Commission for England and Wales
Secondary regulator	None	HMRC (for tax recognition and Gift Aid)
Public register	Companies House register	Charity Commission public register
Governing framework	Companies Act 2006 + CIC Regulations	Charities Act 2011 (as amended by the Charities Act 2022)

Scotland is a separate regime. Scottish charities are regulated by OSCR, not the Charity Commission. If you are based in Scotland, the thresholds and rules differ from those set out here.

Tax: the decisive difference

This is where the structures diverge most sharply, and where getting the comparison wrong is most expensive.

A charity recognised by HMRC pays no tax on most types of income used for charitable purposes. It can claim Gift Aid at 25p for every £1 of eligible donations received from UK taxpayers, provided the donor has paid at least as much income tax or capital gains tax in the year as all charities will reclaim on their donations. It also qualifies for charitable rate relief of up to 80% off business rates on property used wholly or mainly for charitable purposes, with a discretionary top-up to 100% at the local council's option.

A CIC gets none of these reliefs. It pays corporation tax in the same way as any other company. It cannot claim Gift Aid on donations it receives. It does not qualify for charitable rate relief. This is a hard rule, not an edge case: CICs are not charities and the reliefs do not apply to them.

Tax point	CIC	Charity
Corporation tax on income	Full rate applies	Exempt on most charitable income
Gift Aid on donations	Not available	25p per £1 donated (HMRC recognition required)
Charitable rate relief	Not available	Up to 80% mandatory, discretionary top-up to 100%
HMRC recognition required	N/A	Yes, separate from Commission registration

If fundraising from individuals is a significant part of your income model, the arithmetic is stark. A charity raising £100,000 in eligible donations can claim an additional £25,000 through Gift Aid. A CIC raising the same amount keeps exactly £100,000, and then pays corporation tax on any profits arising from its activities.

The asset lock: what it locks in each structure

Both structures carry restrictions on what happens to assets, but they work differently.

A CIC has a statutory asset lock under the Companies (Audit, Investigations and Community Enterprise) Act 2004. Assets must be retained for community benefit or transferred to another asset-locked body (a charity, another CIC, or certain other organisations) when the CIC winds up. CICs limited by shares also face dividend and performance caps: the CIC Regulator sets limits on how much can be distributed to shareholders. The current cap figures are set out in the CIC guidance pack chapters on "Asset Locked Body" and "Shares and Dividend Cap"; verify those chapters before relying on any specific percentage.

A charity's assets are also locked to charitable purposes, enforced by the Charity Commission. Surplus assets on dissolution must go to another charity or charitable purpose; they cannot be distributed to members or founders. There is no equivalent of the shareholder dividend cap because charity trustees are generally unpaid and charities limited by guarantee have no shares.

For founders who want to build equity value or sell their stake later, neither structure permits it in the way a standard private company does. The CIC allows some dividend distribution within the cap; a charity does not allow profit distributions at all.

Paying founders and directors

This is often the practical deciding factor for founders who need to earn a living from the organisation they are building.

A CIC director can be paid a salary, in the same way as any company director. There is no Charity Commission scrutiny of the arrangement. CICs limited by shares can also distribute dividends to shareholders, subject to the regulatory cap.

A charity trustee may be paid only if the charity's governing document authorises it, or the Charity Commission gives specific permission. Many smaller charities pay no trustees at all. A charity can employ staff (including a founder in an executive role), but the trustee role itself is typically voluntary, and the Commission will scrutinise any payment arrangement. See the CIC services page for how this plays out in practice for CIC directors, and the CIC complete guide for the regulatory detail.

Registration and filing burden compared

The structure you choose determines which regulators you file with and how often.

Structure	Registers with	Annual filing	Extra CIC filing
CIO (charitable incorporated organisation)	Charity Commission only	Annual return to Charity Commission (income and spending if under £10,000; fuller return above that; accounts and trustee annual report above £25,000)	N/A
Charitable company	Charity Commission AND Companies House	Annual return to Commission + confirmation statement and accounts to Companies House	N/A
CIC (limited by guarantee)	Companies House only	Confirmation statement and accounts to Companies House	CIC34 community interest company report filed alongside accounts
CIC (limited by shares)	Companies House only	Confirmation statement and accounts to Companies House	CIC34 community interest company report filed alongside accounts

A key advantage of the CIO form is that it registers only with the Charity Commission. A charitable company registers with both the Commission and Companies House, doubling the ongoing filing obligations. A CIC registers only at Companies House but must file the CIC34 community interest company report alongside its accounts each year. No filing fee figure is stated here: the current fee should be confirmed on the live Companies House fees page before any formation decision is made.

Converting between the two

Conversion is possible in both directions but is not a simple administrative step.

A CIC converting to a charity needs to satisfy the Charity Commission that it meets the charitable purpose and public benefit tests. The asset lock that already applies to the CIC eases one aspect, but the regulatory requirements, governing document changes and Companies House filings required make this a substantive project.

A charity converting to a CIC requires Charity Commission approval for the disposal of charitable assets, because moving assets out of a charity requires the Commission to be satisfied that this serves the charity's interests. The gov.uk structure guidance at charity types: how to choose a structure is the starting point; take legal advice before initiating either process.

Decision walk-through: which one fits your situation

Run through these questions in order. The first one that applies usually determines the answer.

1. Is public fundraising with Gift Aid a meaningful part of your income model? If yes, a charity is almost certainly the right structure. The 25% uplift on donations is hard to replicate any other way, and a CIC cannot access it at all.
2. Do you need to pay founders a commercial salary from day one, without Charity Commission oversight of remuneration? If yes, a CIC gives you more flexibility. A charity can employ a founder as staff, but trustee payments require specific authorisation.
3. Is your income primarily from trading, contracts or earned revenue rather than donations? A CIC may be more natural here, especially if your customers are local authorities or commissioners who expect a company counterparty. A charity can also trade, but non-primary-purpose trading carries its own complexity.
4. Do you want the simplest possible formation with only one regulator? A CIO registers only with the Charity Commission. A CIC registers only at Companies House. A charitable company must register with both. Both the CIO and the CIC avoid the dual-registration burden; they differ in every other way.
5. Will you occupy premises and want rates relief? Charitable rate relief of up to 80% is available only to charities. For a property-heavy operation, this can be material.

If you are weighing the CIC route, the CIC accounting services page sets out what ongoing support typically looks like. For the charity formation side, the guide to setting up a charity or CIO covers the Charity Commission process in detail.