Community Interest Company CIC vs CIO Charity

This guide enables you to decide whether you should set up a CIC or a UK charity (now almost always a CIO). It explains the differences between the 2 and the advantages and disadvantages of both types. We also have a guide on the alternatives to setting up a charity or CIC.

Setting Up a Charity Or CIC Company - Free Help

To access help and resources on anything to do with setting up a charity, CIC or any other type of non profit, visit our free online Start-Up Toolbox. We also have 3 online directories Funding Finder, Help Finder and Data Finder, Quality Mark and 60+ downloadable policies. Everything is free.

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Key Questions In Choosing A CIC Vs Charity

Here are some key questions you need to ask in order to decide if you should set up either a CIC or charity.

• How quickly can I set up a non profit?  You need quite a bit of information to set either up, but once submitted a Companies House decision on registering a CIC normally takes about 4 days.  Charity registration decisions can take several months and securing registration for a charity is much more challenging.
• How much flexibility/control do I want?  CICs only require 1 director and, as the Managing Director, you can be a member of the Board.  Charities require at least 3 trustees and are more bureaucratic.
• Can I be paid for running a CIC or charity?  If anyone on the Board has a close personal or business relationship with a member of staff or company you will work with, there's a conflict of interest, which you will need to manage.  The directors of a CIC can be paid.  Trustees of a charity can also be paid, but it's quite a bit more bureaucratic.
• Do I need limited liability protection?  If your non profit is incorporated, you directors/trustees will have limited liability protection.  Unincorporated associations (unregistered charities) and charitable trusts do not. If you will have substantive contracts, such as a building lease, or employing staff or undertaking activities that pose some potential risk of being sued, you will almost certainly wish to be incorporated.
• Will we be trading?  Both charities and social enterprises can trade, but it can be more complicated if you're a charity.  If your charity trading falls within your objects (primary purpose), you shouldn't have corporation tax liability.  However, if it's not (secondary purpose), you may have to set up a trading subsidiary, if the amount exceeds the small trading tax exemption limit.
• How will my non profit be funded?  Charities are more bureaucratic, but the payback is that they are by far more useful for fundraising and enjoy a range of charitable tax reliefs that CICs do not, particularly Gift Aid.  Gift Aid adds 25% to charitable donations from eligible UK tax payers.

In summary, A CIC is much quicker to set up and more flexible but a charity is better for fundraising and enjoys a range of sometimes substantial charitable tax reliefs a CIC does not. Neither is better than the other - it's a case of which would best suit what you want to do?

What's The Difference Between a CIC And A Charity?

• Setting Up A CIC - a social enterprise is a company that uses its profits and assets for the public good. Community Interest Companies (CICs) are probably the most well known, but there are range of other legal structures - here's a useful guide.
  • A CIC Limited By Guarantee is the only type that can convert to a charity, if you subsequently wish to.
• Setting Up A Charity.  There are 4 legal structures for registered charities; charitable trusts, charitable companies and 2 models of Charity Incorporated Organisations (CIO) - the foundation model (no voting members) and the association model (voting members).  Charities take far longer to set up, are less flexible, but enjoy far more tax reliefs and are better for fundraising.
  • Although less well known, there are an estimated 100k unincorporated associations (unregistered charities) in the UK.  These do not have limited liability protection, you must register if your income exceeds £5k pa and some funders will only support registered charities.  However, these are very quick and easy to set up, you can open a bank account and register with HMRC for Gift Aid.

CIC Or Charity CIO - Which Type To Choose

This infographic shows you visually the most common types of non profit and the pros and cons of each.

However, by far the 2 most common choices are a CIC Limited By Guarantee or a registered charity, usually a Foundation CIO.

• CIC Limited By Guarantee - is quicker and simpler to set-up, has more of a 'business' image than charities and can pay board directors, but don't qualify for charity tax reliefs and, whilst fundraising is possible, it's more difficult.
• Registered Charities - are best for fundraising, can claim the extensive charitable tax reliefs, but are much harder to set up, more bureaucratic to run and paying trustees is more complicated.

Here's the index for our Non-profit Start-up Toolbox that has a series of toolkits for everything you'll need including registering with Companies House, the Charity Commission and/or HMRC, Gift Aid, conversions and how to open a bank account.

A registered charity ourselves, we provide 8 online health checks, the huge information hub, Quality Mark and 3 online directories. It works for any non profit, not just charities.

• Funding Finder - click through to more funders than any other grants directory, categories for CICs, Core Funding, Small Charities, and Community and Sports Groups.
• Help Finder – find advice, pro bono support and free services and products, including companies that make financial donations.
• Data Finder - finds data for funding bids, fundraising research, impact reporting, planning and campaigning.

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This Guide to The Alternatives to a Charity or CIC Isn't Professional Opinion

This guide to charity and CICs is for general interest.  I am not an accountant, nor a lawyer and no advice can be applicable to all organisations, in all circumstances, so this resource is no more than a guide to understanding.  I've summarised the regulatory guidance and augmented this with my own experience and Internet research, but I am not competent to provide professional advice.  I have included links to the source guidance to enable you to check this yourself and, if you think you might need professional advice, use Help Finder to find pro bono support.