Community interest companies (CICs) are one of the most searched-for business structures in the UK voluntary and social-enterprise sector, but they are also one of the most misunderstood. This guide covers the CIC universe: what a CIC is, why it is not a charity, the asset lock, dividend rules, filing obligations, tax, and how to choose between a CIC, charity, CIO, and charitable company.
What is a community interest company (CIC)?
A community interest company (CIC) is a limited company registered at Companies House that is designed to operate for the benefit of a community or the public, rather than primarily for the benefit of its shareholders or members. CICs were introduced by the Companies (Audit, Investigations and Community Enterprise) Act 2004 and are regulated by the Office of the Regulator of Community Interest Companies, which sits within Companies House.
Any company that wants to become a CIC must pass a "community interest test": its activities must reasonably be regarded as being in the interests of the community. A CIC can be limited by guarantee (no shares, members hold a guarantee) or limited by shares (shareholders can receive dividends, subject to the statutory cap described below).
CICs are used widely across social enterprise, community sport, arts, health, and regeneration projects. They offer a formal legal structure with a built-in community purpose and an asset lock, without requiring the organisation to meet the legal definition of a charity.
A CIC is not a charity: tax and regulation consequences
This is the most important distinction on this page. A CIC is a social-enterprise legal structure, but it is not a charity in law. The consequences are significant and directly affect the finances of your organisation.
No Gift Aid on donations
Charities can claim 25p from HMRC for every £1 donated under Gift Aid. A CIC cannot. Because a CIC is not recognised as a charity by HMRC, donors cannot make Gift Aid declarations and the organisation cannot reclaim basic-rate tax on donations. If Gift Aid income is central to your fundraising model, a CIC is the wrong structure.
No charitable rate relief
Registered charities can receive up to 80% mandatory relief on their business rates bill, with the possibility of a discretionary top-up to 100% from the local council. A CIC is not eligible for charitable rate relief because it is not a charity. It pays business rates on its premises in the same way as any other limited company.
Corporation tax applies normally
A charity with HMRC recognition does not pay tax on most income used for charitable purposes. A CIC pays corporation tax on its profits in exactly the same way as any trading company, at the standard rate. There are no special HMRC reliefs for CIC status.
A different regulator
Charities in England and Wales are regulated by the Charity Commission. CICs are regulated by the Office of the Regulator of Community Interest Companies (the CIC Regulator), based at Companies House. The CIC Regulator approves CIC applications, investigates complaints, and can intervene where a CIC is not operating for the community interest. The Charity Commission has no jurisdiction over a CIC.
The asset lock explained
Every CIC has a statutory asset lock built into its structure by law. The asset lock means that a CIC's assets and profits must be retained within the organisation or transferred to another asset-locked body (such as another CIC, a charity, or another prescribed body) for the benefit of the community. Assets cannot simply be distributed to members or shareholders and removed from community use.
The asset lock applies to all CICs regardless of whether they are limited by guarantee or limited by shares. It is one of the defining features that distinguishes a CIC from an ordinary company and is set out in the CIC guidance pack published by the CIC Regulator (see the "Asset Locked Body" chapter).
In practice, the asset lock means:
- The constitution of a CIC must include asset-lock provisions.
- If the CIC is wound up or dissolved, any remaining assets must pass to another asset-locked body, not to members.
- Any transfer of assets at below market value to a non-asset-locked body requires CIC Regulator consent.
The asset lock gives stakeholders, funders, and commissioners confidence that money put into a CIC will stay in the community. It is also why CICs are increasingly used to receive local authority contracts and grant funding where a profit-extraction risk would otherwise disqualify an ordinary company.
CICs limited by shares vs by guarantee: dividend caps
CICs come in two main forms, and the choice affects how money can leave the organisation.
| Feature | CIC limited by guarantee | CIC limited by shares |
|---|---|---|
| Members / shareholders | Guarantors (no shares) | Shareholders |
| Can pay dividends? | No | Yes, subject to the statutory cap |
| Asset lock applies? | Yes | Yes |
| Typical use | Community projects, social enterprises without investor capital | Social ventures seeking investor or community shares |
A CIC limited by shares can pay dividends to shareholders, but the amount is subject to a statutory dividend cap and a performance-related cap set by the CIC Regulations. The caps exist to ensure that profit distribution does not undermine the community purpose or circumvent the asset lock. The CIC guidance pack (see the "Shares and Dividend Cap" chapter) sets out how the caps work. Do not rely on any specific percentage figure quoted outside that guidance: the caps are set in secondary legislation and the official chapter is the definitive source.
Directors of a CIC can be paid a salary regardless of structure type. Paying directors is not distribution and is not affected by the dividend cap, provided the remuneration is reasonable and properly approved by the board.
Setting up a CIC
Registering a CIC is a two-stage process handled through Companies House.
The CIC36 form and community interest statement
When incorporating a CIC, you submit a CIC36 form alongside the standard incorporation documents. The CIC36 contains your community interest statement: a plain-English description of what community the CIC will serve and how its activities will benefit that community. The CIC Regulator reviews this statement to decide whether the community interest test is met.
Your community interest statement should be specific. "Benefiting the local community" is vague. A statement that names the geography, the group served, and the type of activity is stronger and less likely to be queried.
Constitution and asset lock wording
A CIC's articles of association must include the prescribed asset-lock provisions. Companies House publishes model articles for CICs (both guarantee and shares variants) in the CIC guidance pack. Using the model articles reduces the risk of a query; if you deviate from them you must ensure the asset-lock wording still meets the statutory requirement.
Ongoing requirements after incorporation
- File annual accounts and a confirmation statement at Companies House (the same obligations as any limited company).
- File a CIC34 community interest company report with each set of accounts (see below).
- Notify the CIC Regulator of changes to directors, registered office, or constitutional amendments.
- Maintain the community interest test: the CIC Regulator can investigate if a complaint is made or if the CIC appears to have drifted from its stated community purpose.
CIC accounts and the CIC34 report
Every CIC must file a CIC34 community interest company report alongside its annual accounts at Companies House. The CIC34 is the mechanism by which a CIC demonstrates to the Regulator and to the public that it is continuing to operate for the benefit of the community.
The CIC34 covers:
- A description of the community the CIC serves and how it has pursued its community purpose during the year.
- Details of any assets transferred out of the CIC and to whom.
- For share CICs: details of dividends paid and confirmation that the dividend cap has been respected.
- Information about director remuneration.
- A stakeholder consultation statement, describing how the CIC has engaged with those it serves.
The CIC34 is filed online via Companies House or by post, with a filing fee. The current fee amount is subject to change; check the Companies House CIC business activities guidance for the current figure before filing, as the amount is not stated on this page (it is an open flag in our verified position set).
For a full walkthrough of what goes into each section and common mistakes to avoid, see our dedicated guide: CIC34 form guide.
CIC vs charity vs CIO vs charitable company
Choosing between structures is the most common question for new social enterprise founders. The table below covers the four main options for organisations with a public-benefit or community purpose in England and Wales.
| Feature | CIC | Unincorporated charity | CIO | Charitable company (CLG) |
|---|---|---|---|---|
| Regulator(s) | CIC Regulator (at Companies House) | Charity Commission | Charity Commission only | Charity Commission and Companies House |
| Must meet charity law definition? | No | Yes | Yes | Yes |
| Corporation tax | Pays normally | Exempt on qualifying income | Exempt on qualifying income | Exempt on qualifying income |
| Gift Aid eligible? | No | Yes (with HMRC recognition) | Yes (with HMRC recognition) | Yes (with HMRC recognition) |
| Business rate relief (up to 80%)? | No | Yes | Yes | Yes |
| Asset lock? | Yes (statutory) | Yes (in charity law) | Yes (in charity law) | Yes (in charity law) |
| Limited liability? | Yes | No | Yes | Yes |
| Where to register | Companies House (CIC36) | Charity Commission (if income over £5,000) | Charity Commission only | Charity Commission and Companies House |
| Annual filing | Accounts + confirmation statement + CIC34 (Companies House) | Annual return to Charity Commission | Annual return to Charity Commission | Annual return (Commission) + accounts (Companies House) |
A key structural point: a CIO registers only with the Charity Commission and does not file at Companies House. This is its headline administrative advantage over a charitable company (a company limited by guarantee with charitable status), which must file with both the Commission and Companies House, creating a dual filing burden. If your organisation qualifies as a charity and wants a single regulator, a CIO is worth considering. See our full guide: How to set up a charity or CIO.
For a deeper head-to-head comparison with real worked examples, see: CIC vs charity: which structure is right for you?
If you are a CIC or social enterprise looking for specialist accountancy support, see: our services for CICs.
Converting between structures
Organisations sometimes outgrow their original structure or find that their funding landscape has shifted enough to make a different structure more appropriate. Conversion is possible in several directions, but each carries legal and practical complexity.
CIC to charity
A CIC cannot simply "become" a charity. The organisation would typically need to transfer its assets to a newly formed charity (which must meet the legal definition of charitable purposes). The asset lock governs how assets can leave a CIC: transfer to a charity is permitted because a charity is an asset-locked body. The CIC would then be dissolved. Alternatively, in some circumstances a CIC limited by guarantee can apply to the CIC Regulator to "disapply" CIC status, but this requires careful legal advice and Regulator consent.
Company to CIC
An existing ordinary company can apply to convert to a CIC, provided it meets the community interest test and is willing to adopt the asset-lock provisions. The conversion requires Regulator approval and a special resolution of members to amend the articles of association.
Charity to CIC
A registered charity cannot convert directly into a CIC, because a CIC is not a charitable body. A charity could transfer activities and assets to a new CIC (since a CIC is not an asset-locked body in the charity law sense, this would require Charity Commission consent and is not straightforward). This direction is uncommon and requires specialist legal advice.
CIO to CIC
A CIO is a charitable body regulated by the Charity Commission. There is no direct conversion route from CIO to CIC in current legislation. Organisations contemplating this change should seek legal advice on the transfer-of-assets route.
In all conversion scenarios, the implications for Gift Aid, rate relief, and any existing grant funding conditions must be assessed before committing to a change of structure.
Running the numbers: tax a CIC actually pays
Because a CIC is a limited company, its tax position is straightforward to understand, even if it differs markedly from a charity.
Corporation tax
A CIC pays corporation tax on its profits at the standard rate. There is no CIC exemption, no equivalent of the charity's "charitable purposes" relief, and no special HMRC recognition process. Profits from trading, grants received that are not ringfenced capital grants, and investment income are all taxable in the normal way.
VAT
A CIC follows the normal VAT registration rules. It must register for VAT once its taxable turnover exceeds the standard threshold. Unlike charities, a CIC does not have access to the charity-specific VAT reliefs (such as zero-rated advertising supplied to a charity, or the 5% reduced rate on fuel and power for non-business use). It can, however, recover input VAT on costs in the normal way if it is VAT-registered and making taxable supplies.
Employment taxes
A CIC that employs staff operates PAYE and pays employer Class 1 National Insurance contributions in the same way as any other employer. The employer NIC rate for 2026/27 is 15% above the secondary threshold of £5,000 per year. Charities (including community amateur sports clubs) are eligible for the Employment Allowance of up to £10,500; a CIC that is not also a charity is not automatically eligible on charitable grounds, though it may qualify on other eligibility criteria (check the current HMRC rates and thresholds and Employment Allowance eligibility guidance).
Director remuneration
CIC directors can be paid a salary. There is no prohibition on paying directors in a CIC, unlike many grant-funded charities that restrict trustee remuneration by convention. Director pay is a deductible expense against corporation tax. However, the board should be able to justify that remuneration is reasonable and that it does not undermine the community interest purpose.
Frequently asked questions
What does CIC stand for?
CIC stands for community interest company. It is a type of limited company registered at Companies House that is designed to benefit a community or the public, regulated by the Office of the Regulator of Community Interest Companies.
Is a CIC a charity?
No. A CIC is a social-enterprise legal structure, not a charity in law. It does not meet the legal definition of a charity and is not regulated by the Charity Commission. As a result, a CIC cannot claim Gift Aid on donations, cannot access charitable rate relief, and pays corporation tax on its profits normally.
Do CICs pay corporation tax?
Yes. A CIC pays corporation tax on its profits at the standard rate, the same as any other limited company. There are no special HMRC reliefs for CIC status. This is a key difference from a charity, which can be exempt from tax on income used for charitable purposes.
Can a CIC claim Gift Aid?
No. Gift Aid is available only to charities (and community amateur sports clubs) recognised by HMRC. Because a CIC is not a charity, it cannot claim Gift Aid on donations and donors cannot make Gift Aid declarations to a CIC. If Gift Aid is important to your income model, you should consider whether a charitable structure is more appropriate.
What is the asset lock?
The asset lock is a statutory requirement that prevents a CIC's assets and profits from being distributed to members or shareholders for personal gain. Assets must be retained within the CIC for community benefit or transferred to another asset-locked body (such as another CIC or a charity) when the CIC is wound up. The asset lock applies to all CICs regardless of whether they are limited by guarantee or by shares. See the CIC guidance pack for the full rules.
Can a CIC pay dividends?
A CIC limited by guarantee cannot pay dividends. A CIC limited by shares can pay dividends to shareholders, but the amount is subject to a statutory dividend cap and a performance-related cap set by the CIC Regulations. The CIC guidance pack (Shares and Dividend Cap chapter) is the definitive source for how the caps work. No specific percentage is stated on this page as the caps are set in secondary legislation and must be checked against the current regulations.
Who regulates CICs?
CICs are regulated by the Office of the Regulator of Community Interest Companies, which sits within Companies House. The CIC Regulator approves applications, investigates complaints, and can intervene where a CIC is not operating for the community interest. The Charity Commission does not regulate CICs.
What is a CIC34 report?
The CIC34 is a community interest company report that every CIC must file alongside its annual accounts at Companies House. It describes how the CIC has served its community during the year, any asset transfers, dividend payments (for share CICs), director remuneration, and stakeholder engagement. It is filed online or by post and carries a filing fee; check the current CIC business activities guidance for the current fee amount. For a full guide to completing the CIC34, see our CIC34 form guide.
Can a CIC convert to a charity?
Not directly. A CIC cannot simply convert to a charity. The most common route is to transfer the CIC's assets to a newly incorporated charity (which is an asset-locked body and therefore a permitted transferee under the asset lock) and then dissolve the CIC. This requires legal advice, CIC Regulator involvement, and Charity Commission approval of the new charitable entity. It is not a simple administrative process.
How much does it cost to set up a CIC?
Companies House charges a fee for incorporating a company; the CIC application (CIC36 form) is reviewed by the CIC Regulator as part of the same process. The current incorporation and CIC application fees are set by Companies House and the CIC Regulator respectively, and are not stated on this page to avoid publishing a figure that may be outdated. Check the CIC Regulator's website for current fees before applying.
Can a CIC pay its directors?
Yes. There is no prohibition on paying directors in a CIC. Director remuneration is a deductible expense against corporation tax, and the board should be able to demonstrate that pay is reasonable and consistent with the community interest purpose. This is a difference from charitable trustees, who are generally prohibited from being paid unless their governing document explicitly permits it.
Do CICs get business rate relief?
No. Charitable rate relief of up to 80% (with possible discretionary top-up to 100%) is available only to organisations that are charities in law. A CIC is not a charity and is not eligible for charitable rate relief. It pays business rates in the same way as any other limited company occupying commercial premises.