Community Interest Companies (CICs): Tax Treatment 2026/27
How Community Interest Companies are taxed in the UK: Corporation Tax rules, the asset lock, dividend cap, and how a CIC compares to a charity or standard limited company.
What Is a Community Interest Company?
A Community Interest Company (CIC) is a type of limited company created specifically for social enterprises -- businesses that want to use profits and assets primarily for the benefit of the community, rather than to maximise returns for shareholders. Introduced in 2005, CICs are registered with Companies House and regulated separately by the CIC Regulator.
To register as a CIC, a company must pass the community interest test: the CIC Regulator must be satisfied that a reasonable person would consider the company's activities are being carried out for the benefit of the community. CICs must also file an annual community interest report alongside their normal Companies House accounts, explaining how their activities benefited the community and how they engaged with stakeholders.
CICs can be limited by shares (allowing investors to hold shares and receive a capped dividend) or limited by guarantee (more common for organisations without external shareholders, similar in structure to many charities).
How CICs Are Taxed
This is the point many people setting up a social enterprise get wrong: a CIC is not a charity, and HMRC does not treat it as one. A CIC is taxed exactly like any other limited company.
Corporation Tax for 2026/27:
| Profit level | Rate |
|---|---|
| Up to £50,000 | 19% (small profits rate) |
| £50,000 to £250,000 | Marginal relief -- effective rate rises gradually from 19% to 25% |
| Over £250,000 | 25% (main rate) |
A CIC files a normal Corporation Tax return (CT600) and pays tax on its trading profits, investment income and chargeable gains in the same way as any other company. There is no reduced rate, exemption or special treatment for CICs simply because of their social purpose.
No Charitable Tax Reliefs
Because a CIC is not a charity, it does not qualify for any of the following:
- Gift Aid: a CIC cannot claim Gift Aid on donations it receives, even from individual donors who would otherwise be happy to donate under Gift Aid to a charity
- Charitable Corporation Tax exemptions: charities can exempt certain income and gains from tax when applied for charitable purposes; CICs cannot
- Mandatory business rates relief: registered charities get 80% mandatory relief on rates for premises used for charitable purposes; CICs have no equivalent mandatory relief, though some councils offer discretionary relief
- VAT reliefs for charities: certain VAT zero-rating and reduced-rating provisions that apply to charities do not automatically extend to CICs
This is the central trade-off of the CIC structure: it is quicker and simpler to set up than a registered charity, and gives more flexibility to trade and pay a capped return to investors, but it sacrifices the significant tax advantages that come with charitable status.
The Asset Lock
The asset lock is the defining legal feature of a CIC. It is a permanent restriction, built into the company's constitution, that prevents assets and profits from being extracted for private benefit beyond limited, capped returns to investors.
Key features of the asset lock:
- Assets can only be transferred to another asset-locked body (such as another CIC, a charity, or certain other regulated bodies), or transferred at full market value
- On dissolution of the CIC, any remaining assets after creditors are paid must go to another asset-locked body specified in the company's constitution, or to the CIC Regulator's residual asset fund if no recipient is named -- they cannot simply be distributed to the company's members
- The asset lock cannot be removed or amended without the CIC Regulator's consent
Dividend Cap and Returns to Investors
CICs limited by shares can raise capital from investors and pay dividends, which is a significant point of difference from charities (which generally cannot distribute profits to any private individual). However, dividends are subject to rules set by the CIC Regulator designed to preserve the CIC's social-purpose character.
The dividend cap regime was significantly relaxed in 2014 to make CICs more attractive to social investors, removing some of the tighter per-share caps that previously applied. The current detailed limits should always be checked against the CIC Regulator's published guidance, since they can change and the CIC Regulator retains oversight of distributions to ensure the asset lock principle is respected.
Dividends paid by a CIC to individual shareholders are taxed on the recipient in the normal way -- against the £500 dividend allowance for 2026/27, then at the dividend tax rates applicable to the shareholder's income tax band.
CIC vs Charity vs Standard Limited Company
| Feature | CIC | Registered charity | Standard limited company |
|---|---|---|---|
| Corporation Tax | Full rates (19%/25%) | Exempt on charitable income/gains | Full rates (19%/25%) |
| Gift Aid | Cannot claim | Can claim | Cannot claim |
| Business rates relief | Discretionary only | Mandatory 80% | None |
| Can pay dividends | Yes, capped | No | Yes, unrestricted |
| Asset lock | Yes, permanent | Charitable assets restricted to charitable purposes | No |
| Set-up speed/complexity | Relatively fast | Slower, more scrutiny | Fastest |
| Public trust/branding | Recognised social enterprise mark | Strongest for donors | Neutral |
CIC and Charity Structures Working Together
Many social enterprises operate a CIC and a registered charity side by side: the charity carries out the core charitable activities and receives grants and Gift-Aided donations, while a linked CIC (or trading subsidiary) carries out trading activity, such as selling goods or services, that would not qualify for charitable tax treatment on its own.
Profits generated by the CIC can be paid to the linked charity, often structured as a qualifying charitable donation, which can reduce the CIC's own Corporation Tax bill. This mirrors the way ordinary trading subsidiaries donate profits to their parent charity, even though the CIC itself, as recipient rather than donor, cannot claim Gift Aid on money coming in.
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Frequently asked questions
What is a Community Interest Company (CIC)?
A Community Interest Company is a special type of limited company, introduced in 2005, designed for social enterprises that want to use their profits and assets for the public good. A CIC must pass a 'community interest test' when it registers and file an annual community interest report showing how its activities benefited the community.
How is a CIC taxed?
A CIC is taxed exactly like a normal limited company. It pays Corporation Tax on its profits at the standard rates -- 19% for profits up to £50,000, 25% for profits over £250,000, with marginal relief tapering the rate in between. A CIC does not get any of the tax reliefs available to registered charities.
Does a CIC get charitable tax reliefs?
No. Despite its social purpose, a CIC is not a charity and does not qualify for charitable tax exemptions such as relief from Corporation Tax on certain income, Gift Aid, or mandatory business rates relief. This is one of the key trade-offs of choosing a CIC over charitable status.
What is the asset lock in a CIC?
The asset lock is a permanent restriction written into a CIC's constitution that prevents its assets and profits from being distributed for private benefit beyond a capped return to investors. On dissolution, any remaining assets must be transferred to another asset-locked body, such as another CIC or a charity, rather than to the company's members.
Can a CIC pay dividends?
A CIC limited by shares can pay dividends to shareholders, but historically this was subject to a regulator-set dividend cap limiting the total dividend and the per-share dividend. The cap was significantly relaxed in 2014 to encourage social investment, but a CIC's overall distributions remain constrained by the asset lock principle, and the CIC Regulator's guidance should be checked for current limits.
How does a CIC compare to a registered charity?
A charity gets significant tax reliefs (exemption from tax on most income and gains applied for charitable purposes, Gift Aid on donations, business rates relief) but faces tighter restrictions on trading and cannot pay dividends to owners at all. A CIC gets none of the charity tax reliefs, pays full Corporation Tax, but has more flexibility -- including the ability to trade freely and pay a capped dividend to investors -- and faster, simpler setup than becoming a registered charity.
How does a CIC compare to a standard limited company?
A standard limited company has no asset lock and no restriction on distributing profits to shareholders, and can be dissolved with assets passing entirely to its members. A CIC gives up that flexibility in exchange for a recognised social enterprise brand, but is taxed identically to a standard company for Corporation Tax purposes -- there is no direct tax benefit to choosing CIC status over a standard limited company.
Can a CIC claim Gift Aid on donations it receives?
No. Gift Aid is only available to registered charities and Community Amateur Sports Clubs (CASCs). A CIC cannot claim Gift Aid on donations, even though it exists for community benefit -- this is a common misconception and a key reason some social enterprises choose charitable status instead of, or alongside, a CIC structure.
Does a CIC pay business rates relief like a charity?
Not automatically. Registered charities are entitled to mandatory 80% business rates relief on premises used for charitable purposes. A CIC has no equivalent mandatory relief, though local authorities have discretion to grant discretionary rate relief to CICs and other not-for-profit organisations -- this varies by council and is not guaranteed.
Can a CIC convert to or work alongside a charity?
A CIC cannot itself become a registered charity by simple conversion (the structures are legally distinct), but many social enterprises operate a charity and a CIC together, using the CIC for trading activity and the charity for grant-funded or charitable-purpose activity, with profits from the CIC sometimes donated to the linked charity via Gift Aid, which the CIC can pay as a company, even though it cannot receive Gift Aid itself.
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