The Differences between a CIC and a Charity
Community Interest Companies (CICs) and charities present two unique pathways to social impact, each with distinct operational and financial mechanisms. A charity’s survival often hinges on grants, donations, and fundraising, enabling them to undertake time-limited projects. Conversely, CICs enjoy a more diverse income portfolio, including contracts, trading income, and grants, allowing them to offer consistent products and services.
In terms of governance, CICs are permitted to pay directors and employees, a flexibility not extended to charities. Charitable organisations often enforce a rule prohibiting directors from being employees, necessitating voluntary service. Meanwhile, a CIC can operate with a single director, whereas a charity must have at least three trustees.
Regarding taxation, charities enjoy exemption from corporation tax and potential rate relief of up to 100%. CICs, on the other hand, are not automatically entitled to these benefits, with any rate relief being subject to local authority discretion. Donations, too, present a different picture. Charities can claim 25% Gift Aid on donations, but CICs must declare any donations as income and are subject to corporation tax.
In essence, while CICs and charities both strive for social impact, their financial and governance models significantly differ. Potential founders and stakeholders should consider these differences when deciding on their organisation’s format.
Steps to Convert a CIC to a CIO
Converting a CIC Limited by Guarantee to a Foundation CIO
Converting a Community Interest Company (CIC) to a Charitable Incorporated Organisation (CIO) requires a systematic approach.
Step 1 involves preparing a conversion resolution, with the CIC’s directors confirming the members’ intention to convert, as per the Charitable Incorporated Organisations (Conversion) Regulations enacted in September 2018.
In Step 2, the CIC must adopt a model CIO constitution provided by the Charity Commission, reflecting the conversion in the organisation’s name. If each member’s liability is more than £10 in the event of a wind-up, the constitution must state members’ obligations.
Step 3 requires a resolution adopting the proposed constitution of the CIO, confirming the members’ acceptance.
Finally, Step 4 calls for an application for charitable status. This includes reading relevant guidelines, submitting the resolutions, the proposed constitution, a Trustee Declaration Form, and indicating the CIC’s wish to attain charitable status as a CIO in the ‘Special Circumstances’ section.
Post-application, the Charity Commission verifies eligibility for charity registration. Upon approval, Companies House deregisters the CIC, and the CIO is registered as a charity.
Why it might be a good idea to get a specialist, like KG Accountants, to do it for you
Engaging a specialist such as KG Accountants for your CIC to CIO conversion can streamline the process.
Leveraging their expertise ensures compliance with regulations, avoiding potential pitfalls. They handle all documentation, reducing your administrative burden and allowing you to focus on your organisation’s mission.
Their guidance can be instrumental in navigating this complex transition, promoting successful conversion and subsequent charitable status attainment.