Simple Answer: No, a CIC is not a Charity!
What is a CIC – this is a relatively new form of company. It was introduced in 2005. It is for businesses with a social purpose whose profits and assets are mainly used for the same purpose in the business or the community.
CICs are however registered companies limited by guarantee or shares. They are not charities. They are sometimes referred to as social enterprises.
Even though CICs are limited companies, they can raise funds by seeking donations and applying for grants; this being because of the public benefit nature of the organisations.
Difference between a Charity and CIC
Make – Up: A CIC can have just one Director, though it is advisable to have at least three unrelated directors if the CIC will be applying for grant funding. Charities on the other hand are required to have a minimum of three trustees.
Public Benefit – A CIC is required to define the community they will serve (e.g. group of people/things, region, people with certain characteristics e.g. young people, businesses servicing disabled people, etc.). A charity on the other hand must be set-up to provide one of the charitable purposes or objects, defined by law. The difference being that while a CIC has to state the community it will serve, these are not enshrined in law as with the charitable purpose a charity has to choose from.
Source of funding: Even though CICs can raise funds by seeking donations and applying for grants, their main source of income will usually be from trading, unlike charities whose main source of funding is usually grant funding, donations and other charitable fundraising activities.
Financial Compensation: The Directors of a CIC can be financially compensated (in the form of a salary for example) while Charity’s Directors (Trustees) are expected to be volunteers and not draw a salary, rather they get reimbursed for expenses. This often means that while in the case of a CIC a founder can remain on the board and also be paid, in charities a founder often has to choose between being a member of the board of trustees or being an employee and draw a salary.
Reporting Requirements: CICs are regulated by Companies House and the CIC Regulator. They have to submit annual financial statements in the same format as other companies, to Companies House and also submit a simple report to the CIC regulator on the benefit they provided their community, how they interacted with them and the amount of remuneration during the reporting period. A CIC also has to complete an annual confirmation statement confirming the companies details are correct.
Charities are however regulated by The Charity Commission and only have to complete an annual confirmation statement and file accounts with Companies house, if they are also registered as a company. Charities have prescribed financial reporting formats with which they have to submit annual financial statements, and are also required to report on their public benefit and on the achievement of their objects, any renumeration made to trustees and related parties.
Tax: CICs are liable for corporation tax (they pay tax on their surpluses) and are not able to claim gift aid, whereas charities do not pay tax and are able to claim gift aid on donations by individuals.
Are you in the process of setting up a charity and considering if a CIC might be better? Feel free to contact us for a no obligation chat to help you think it through or to hear about the services we provide CICs.