An overview of Community Interest Company (CIC) Business Activities

An overview of Community Interest Company (CIC) Business Activities

Community Interest Companies (CICs) are a unique type of limited company designed specifically for organisations that want to use business as a force for good. Rather than focusing on maximising profit for shareholders, CICs exist primarily to deliver benefits to a community or a defined group of people.

At their core, CICs combine the flexibility of a traditional company with clear safeguards to ensure their activities remain focused on social impact in their community. They can trade, employ staff, enter contracts, and generate income just like any other business, but their purpose must always pass the “community interest test.” This means a reasonable person would see their activities as benefiting the community rather than private individuals/shareholders.

What kinds of activities can CICs carry out?

CICs can undertake a wide range of activities, provided these deliver a community benefit. For example:

  • Providing direct services (e.g. support for vulnerable groups)
  • Running trading activities where profits are reinvested into social aims
  • Delivering projects that address social or environmental issues

Importantly, CICs cannot exist purely for private gain. Their activities must not primarily benefit directors, members, or a restricted group. They are also restricted from having political purposes.

Key features that shape CIC activities

Several defining features ensure CICs stay aligned with their mission:

  • Community purpose first: Activities must prioritise community benefit over profit
  • Asset lock: Company assets and profits must be used for community purposes and cannot be freely distributed
  • Transparency: CICs must produce an annual report showing how their activities benefit the community and their consultations in the year with stakeholders
  • Regulation: The CIC Regulator reviews applications and ongoing compliance

Which type of CIC?

CICs can be set up as either a company limited by guarantee or a company limited by shares.

  • Limited by guarantee - no shares, no dividends. Members give a nominal guarantee (usually £1) if the company winds up. This is the most common structure for CICs focused purely on social impact.
  • Limited by shares - shareholders can receive dividends, but these are subject to a dividend cap. Currently, no more than 35% of distributable profits can be paid out as dividends each year.

The dividend cap exists to protect the asset lock - ensuring most profit stays in the business for community benefit.

In practice, the dividend cap can make it harder to attract traditional investors, who typically expect uncapped returns. However, social investors and grant funders who specifically back social enterprises may still engage with a shares structure. It is worth noting though that most grant funders will not fund a CIC limited by shares. The profit-distribution element can conflict with their own charitable purposes or funding criteria.

Setting up and defining activities

When forming a CIC, organisations must clearly describe their intended activities in a Community Interest Statement (Form CIC36) and include appropriate provisions in their articles of association.

This ensures from the outset that:

  • The purpose is very clear
  • Activities will meet the community interest test

Taxation

A CIC is a trading company. They are expected to make profits and are subject to Corporation Tax the same as any other trading company. It is a myth that if you are a CIC you don’t pay any tax. Almost all income to the CIC is taxable income for Corporation Tax purposes. Grant income can be complex from a Corporation Tax perspective – when it's taxable depends on the specific terms and conditions attached to the grant. Your accountant can help you work through this.

In addition, the normal VAT registration rules apply to CIC’s (and charities) - if your taxable supplies for VAT go over £90,000 in a 12 month rolling period then you must register for and charge VAT on your services. VAT is a complex task, and it’s important that you get professional advice to establish what income is taxable, exempt or outside of the scope. And if you have taxable and exempt income, you’ll also need to look into partial exemption and business/non-business income. As we said, it’s complex – don't guess or you’ll end up in hot water!

One final word on taxation and CIC’s. A CIC is NOT a charity. Charities are able to claim 25p of Gift Aid from HMRC on every £ of eligible donations, and the donor can receive tax reliefs on the donation. Donations to CIC’s are not able to claim gift aid, and any donations to a CIC will have no tax reliefs for the donor. It’s important that both the donor and the CIC are aware of this.

Summary

CICs play an important role in the UK’s social enterprise landscape. They provide a structured way to run a business while ensuring that profit serves purpose - not the other way around. For organisations looking to balance commercial activity with social impact, CICs offer a practical and credible model.

Ready to get started?

If you’re considering setting up a CIC or want to make sure your activities meet the required criteria, chat with us. We can help you shape your ideas, ensure compliance, and get your CIC off to a strong start.

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