The short is yes. Community Interest Companies (CICs) pay the same taxes as any other company. Also, Investment income, trading profits, and all other gains are taxable. CIC also pays Corporation Tax, completes a CIC Tax return, Pays VAT, just like a Normal Limited company.
Charities do not pay Corporation tax, but charities are also prevented from paying the directors/trustees . The CIC is a middle ground for companies that are established for the good of the community, but would also like to provide a living to the directors.
Raising funds in a CIC
Because a CIC is a company, you can raise funds by selling shares, something you can’t do in a charity. The dividend payments to shareholders are restricted, but they can still make a profit on their investments.
Dividends that were issued between 1 July 2005 and 5 April 2010 are limited to 5% over the Bank of England prime lending rate. This is a very low rate at the moment, though higher than in the past couple of years.
For shares issued on 6 July 2010 and thereafter, the cap is 20 percent of the paid up value of the shares.
The aggregate dividend can be just 35% of distributable profits, whereas a private company can distribute all of its profits and more.
Ongoing funding in a CIC
A CIC is expected to raise much of its operating capital through trading Income. This means that a CIC is not nearly as dependent on donations all the time as compared to Charities. While a CIC can accept donations, the vast majority of revenues are generally generated through some form of trade.
Directors and Founders
Because a CIC can pay directors, the founders will usually assign themselves to the Board of Directors and receive compensation.
In a charity, the directors cannot be paid. Often, the founder will resign from the Board of Directors in order to work for the charity and be paid. This can mean that the most experienced leader takes a demotion simply to be paid.
CICs are required to pay VAT unless they’ve received an exemption. You can apply for an exemption if your CIC meets a certain set of guidelines. Once a CIC reaches the VAT threshold, they need to apply for the VAT exemption.
Charities can claim gift aid on Donations but CICs cannot. Persons donating to a CIC also cannot claim gift aid. Donations to a CIC are not tax-deductible.
CIC Asset Lock
At the heart of the CIC business structure is the asset lock. The assets of a CIC are locked from being used so they can be available to benefit the community.
Charities can own a CIC. This would allow the CIC to pass its assets over the charity. Still, this would be two different companies.
A CIC can convert to a charity and a charity can convert to a CIC, but no one company can be both charity and a CIC at the same time.
CIC accounts and taxes for a Community Interest Company can be very complex. The best choice for nearly every CIC is to let a company of experts, like KG Accountants, handle all of it. The fines and penalties for being wrong can be significant.