I know that sounds like the start of a bad joke but it’s definitely not. It’s actually a question that we get asked all the time at Mountain Top Accountants and the short answer is simple, while the longer answer is slightly more complicated.
On the face of it, CIC’s and charities look fairly similar as the intention is all about being a positive, socially-minded venture that in some way helps out in the local or even wider community. However, the status of these types of organisations are very different, especially in the eyes of HMRC. In simple terms, both generate income and use that money for good. But for Charities there are significant breaks such as tax relief and even the ability to claim extra tax back on donations. CIC’s simply don’t have that in the same way.
To gain a better understanding of what a CIC is in comparison, the starting point is to recognise that CIC stands for Community Interest Company and it’s that last word ‘company’ that’s key. On face value, a CIC looks like a charity but in fact acts much more like a traditional Limited Company. It certainly doesn’t have the tax breaks that charities enjoy, even if the associated work is what you’d assume is ‘charitable’. In fact, a CIC does pay Corporation Tax on its ‘profits’.
Charities and CIC’s could both be deemed as being ‘for public benefit’ but the set ups are very different, it just depends on what you want for the work involved. CIC’s allow for those involved to be paid as directors in the same way that people are within a traditional company and what’s more, a dividend can be paid to the shareholders.
Charities don’t allow for that in the same way (no dividends at all) and there have to be special provisions in their governing documents for a trustee to be paid for being a trustee. In fact it is extremely rare for a trustee to be paid for being a trustee.
Something else to bear in mind is the difference in reporting that the two organisations have to undergo. Financial reporting for Charities is perceived as being a lot more complicated, cumbersome and it involves scrutiny from both the Charity Commission, HMRC, possibly Companies House and in most cases an independent examiner or auditor of the accounts. CIC’s on the other hand only have to deal with HMRC and Companies House.
But even with this, there seems to be a slight misconception that it’s much easier being a CIC. From our experience at Mountain Top Accountants, CIC’s still have to file accounts properly just a Limited Company does and for that our recommendation is that you always use a good accountant … us at Mountain Top if you like.
So, if you are interested in setting up a CIC or a fully-fledged Charity then you need to talk to us at Mountain Top on 01752 914214. Bear in mind, very few people get to the top of the mountain without any help and that undoubtedly includes socially-minded organsations within the Third Sector.
