CIC’s and taxes: Understanding the laws in brief

There’s a lot of confusion about how CICs and taxes work. Are CICs like charities with a special tax exemption? How does being asset-locked affect their taxation? What if the CIC donates to charity?

In this blog, we’re going to answer these questions and more in the most concise way possible. You don’t need to get an accounting degree to understand how CICs and taxes work.

(You might, however, want someone with an accounting degree to do your taxes. Let KG Accountants help you do them well and on time.)

Does a community interest company (CIC) Pay Tax?

At KG Accountants, we get this question a lot, “Does a community interest company (CIC) pay taxes?”

The short answer is yes. CICs pay taxes exactly as every other normal company does. Since it’s not a charity, a CIC is still a company. 

CIC’s must pay corporation taxes and VAT. If a CIC makes a donation to charity, it can write off the amount just as a regular company does. 

Think of it like this: A CIC is just a company that’s asset-locked and was founded for the community’s good. It’s still a company.

Do CIC companies (community interest companies) pay VAT? 

Yes. CICs pay VAT.

If they don’t have a VAT exemption, CICs must pay VAT. If your CIC complies with a specific set of requirements, you may petition for an exemption. A CIC must apply for the VAT exemption whenever it exceeds the VAT threshold.

Are donations to a CIC tax deductible?

A community interest company cannot use gift aid since it is not a charity. “Donors” may not claim the donation as a gift as they would be able to if they were donating to charity.

The amount of any surplus that a CIC distributes to a charity, however, will be deducted as a “charge” when calculating its earnings for corporation tax purposes.

CICs vs. Charities: A look a similarities and differences

Because a CIC is founded for community good, many people confuse them with charities. Legally, they are very different, but the mission is the biggest commonality.

Both CICs and charities are created for the common good. 

Where a Charity has tight guidelines stating that a Director cannot be an employee and they are expected to fulfil their tasks in a totally volunteer capacity, CICs are authorised to pay Directors and staff.


When you consider that in a charity, the founder will step down from the board in order to get paid for their work in the charity, relinquishing all influence and involvement in decision-making, the restrictions on directors being workers come into play pretty forcefully.

A CIC must specify the community it will serve, though. This could be a collection of individuals or objects, a place, etc. A CIC may also be charitable, but this is not necessarily the case depending on the community benefit.

Minimum Trustees or Directors

If you want to seek funding, there are normally requirements that a minimum of three unconnected directors or trustees are nominated. There are frequently five trustees. 

A CIC may only have one Director.

CIC Taxes

Unlike charities, CICs are not exempt from corporation tax. While CICs are not automatically qualified for this and the local authority has the power to decide whether or not they should receive any rate relief, charities are eligible for a rate relief of up to 100%.

CIC donations taxable?

Charities often get 100% of their revenues from donations. This is all deductible from any taxes.

CICs are not eligible to receive gift aid, although there are certain crowdfunding and contribution websites that can help a CIC with gift aid. Additionally, CICs are required to report all gifts as income and pay corporation tax.

While the mission may be the same, CICs and charities are structurally very different.

Because a CIC pays taxes and operates as a company, they are often easier to set up and to meet the guidelines for.

How we can Help – Contac Us

Call us today on Tel: 0207 953 8913 or complete our enquiry form in order to book a FREE initial consultation

If you have questions about filing your annual confirmation statement, please contact KG Accountants at 0207 953 8913 or visit us on KG Accountants.

Categories: CIC Tax return, Community Interest Companies

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