What’s the key difference between a CIC and a charity, and which is better for your organisation? Learn how to decide between a CIC Vs a CIO.
Are you interested in setting up a social enterprise? That’s great news! But, before you get started, you’re going to want to read on to navigate the legal paperwork side of the whole process.
When you start a social enterprise you have two options. You can either form your organisation as a registered charity or a Community Interest Company (CIC). Both can be great vehicles for accomplishing your goals in the local community.
When starting the process, though, a lot of people ask “what’s the key difference between a CIC and a charity”? It’s a question that’s worth asking. And, one that a lot of people may not know the answer to.
Fortunately for our readers, that’s exactly the question we’re going to tackle today. By the time you’re done reading, you’ll understand the unique characteristics of both a registered charity and a CIC organisation.
But, there’s a lot of information for us to cover. So, let’s get going!
What To Consider
The first thing you’ll need to consider is your long-term goals. When you structure your social enterprise, you’ll need to decide how you want to impact the community, how you want to create revenue, and how you want to deal with board members and shareholders. Both structures have their own way of handling each aspect.
CICs will get most of their money from trade while charities will get most of their money from fundraising and donations. You need to decide if going out and asking people to fund your organisation is the right fit for you.
The way a social enterprise chooses to create its income is important. It can affect the type and scope of projects you can do to improve the local community. For example charities (since they depend on donations from funds and trusts) are typically involved in projects that have strict deadlines.
CICs, on the other hand, get their income from trading or commoditizing a service they offer. They can use grants on occasion. But, overall, the way they receive their income gives them more flexibility when it comes to their impact on the community.
Both charities and CICs will have board members or directors. The difference here is that CICs can employ directors and pay them a salary. It’s not typical for directors or board members to receive a salary for the charity work they do.
Certain charity employees can receive payment. But the Charities Commission usually requires there to be a separate Board of Trustees from the employees receiving payment. There are also limits on the number of charity employees that can receive a salary.
In charities, it’s typical for the founding member to step down from the Board and then receive a salary. While this is good in some ways, it severely limits their control over the work the charity does.
In a CIC, on the other hand, the Board is typically made up of the same employees/volunteers working within the organisation. This allows founding members of the CIC to maintain more control over the company. Being on the Board and working within the organisation at the same time allows them to better direct the impact of the CIC.
What’s the Key Difference Between a CIC and a Charity?
If you’re still wondering “what’s the key difference between a CIC and a charity”, we’ve got you covered. In addition to some of the differences we’ve outlined above, you’ll also want to look at the concept of community interest vs a charitable object.
As a requirement, CICs must specify a community they choose to impact. It can be a demographic group, a geographical community, or a group of things they want to benefit. An example may be supporting a certain borough in London or supporting female business owners in the UK.
A CIC’s community benefit may also be considered charitable. But, this depends on the group or area they choose to impact. The Regulator of CICs will accept most community benefits. These causes CICs choose to support are not regulated.
Charities, in contrast, are more limited in what they can do. There is a numbered list of initiatives that qualify as charitable causes. These are governed by law.
When you choose to set up a charity, you can choose one or more initiatives to support from the list. To be considered a charitable object the items on the list must have a “public benefit” to the community.
What constitutes a public benefit is more well-defined by law. As a result, there are more restrictions placed on charitable organisations.
Taxes are a concern of any organisation. Whether it’s non-profit or for-profit.
CICs are still subject to corporate tax regulations. Since they’re still considered a “company”, they will be taxed on the surpluses in their budget. Charities are not subject to corporate tax.
Charities are also eligible for 80% rate relief. They can get an additional 20% of rate relief, as well. But, that additional 20% is at the discretion of the local government.
Charities also have the benefit of something called gift aid. Charities can claim gift aid on donations. The result is that the donation they receive will be increased by 25%.
CICs can’t formally claim gift aid. But, some CICs have been able to receive it through crowdfunding and various donation sites.
Asset Lock and Changing Legal Structure
CICs have to deal with a concept called asset lock. If a CIC closes its doors, any assets it owns have to be rolled over to another CIC or charity. Charities also deal with a similar legal process.
If a charity closes, all remaining assets need to transfer. And, they need to transfer in much the same way as with a CIC.
The Choice Is Yours
We hope we answered the question, “what’s the key difference between a CIC and a charity”. It’s an important step in opening the doors of your social enterprise. Meet with your potential board members and volunteers and decide what type of legacy you want to leave.
If you have any more questions about CICs or charities, contact the experts at KG Accountants. We are more than happy to help you maximise your impact on your community.
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Categories: Charitable incorporated organisation (CIO), Charity, Community Interest Companies, difference between cic and charity
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