Key points
- A CIC is a limited company with a social purpose. It registers at Companies House and is approved by the CIC Regulator.
- A CIC is not a charity. It pays Corporation Tax on its profits, including grants that fund its trading activities.
- A grant for running costs is income only as you spend it. Putting the whole grant into one year can mean paying tax on money meant for next year.
- Every year a CIC files its accounts and a CIC34 community interest report with Companies House, within 9 months of the year end.
What a CIC is
A community interest company is registered and carries out its activities with a social purpose. Usually it serves a particular community. It can trade, and charge for what it does, but its main aim is the benefit of the community, not profit for its owners.
An online school teaches children to draw. Parents pay for the lessons, and the school also receives grants. Its main aim is not profit, but the development of the children and the local community. A CIC suits this very well.
- Limited liability. The people who set it up are not personally liable for all of its activities.
- Asset lock. Its assets must be used for the community. They cannot simply be transferred out at less than full value.
- Limited dividends. A CIC limited by shares can pay dividends to investors, but in total no more than 35% of its distributable profits. A CIC limited by guarantee cannot pay dividends at all.
- Directors can be paid a reasonable salary for their work.
- Grants. Many funders support only not-for-profit organisations such as CICs and charities, and often fund the full cost of a project, where grants for ordinary companies usually need match funding.
CIC or charity?
| CIC | Charity | |
|---|---|---|
| Purpose | Community benefit; commercial activity allowed | Exclusively charitable purposes |
| Registered with | Companies House and the CIC Regulator | Charity Commission (England and Wales) and HMRC for tax reliefs |
| Profits to owners | Limited dividends allowed (CIC limited by shares) | Never |
| Directors' pay | Allowed | Trustees are usually unpaid |
| Corporation Tax | Yes, on profits | Generally exempt on income used for charitable purposes |
| Main funding | Sales, grants, investment | Donations, Gift Aid, grants |
Myth: "a CIC is a community organisation, so it does not pay tax"
Many people believe that a community organisation is automatically non-profit and tax-free. It is not. A CIC has no special exemption from Corporation Tax. It pays tax on its trading profit, and on grants that fund its trading activities, at the same rates as any company.
How grants are taxed
Grants are where we see the most mistakes. The treatment depends on what the grant pays for.
- 1. Grants for running costs: income as you spend themWhen a grant pays for staff, rent, advertising or other running costs of your activity, it is treated like trading income. But only the part you have used in the period counts. If you spend £1,000 of the grant on salaries, you record £1,000 of income and £1,000 of costs: nothing to tax.
- 2. Grants for buildings or equipmentA grant for a capital investment, such as premises or equipment, is not trading income and does not go into the Corporation Tax calculation. But the part of the cost paid by the grant cannot be claimed as capital allowances either. In short: neither income nor a deduction.
- 3. Grants for activities with no tradeIf a grant funds purely community activity for which the CIC charges nothing, that funding is generally not taxed, because there is no trade. But you have to be able to show this to HMRC.
A CIC receives a 12-month grant in December, and its financial year ends in April. By the year end it has used only the part for December to April. If the whole grant is recorded as income in that year, the CIC pays Corporation Tax on money it has not yet spent, and has less left for the activity the grant was meant to fund.
Grant timing calculator
Accounts and the CIC34 report
A CIC files annual accounts like any company, within 9 months of its year end, and a confirmation statement every year. With the accounts it must file a CIC34 community interest company report, with a small filing fee. The report is public, and it is how the CIC Regulator and your funders see that you are doing what you promised.
- What the CIC did in the year and how the community benefited
- How you consulted the people you serve
- Directors' pay
- Any transfers of assets for less than full value
Write it as a short story with facts: how many children attended, how many classes, what changed. Funders read it.
A CIC's accounts must follow UK accounting standards, and grants must be recorded in the right periods. That takes knowledge of the standards, not just bookkeeping.
Mistakes we see
- The whole grant taken as income in one yearTax is paid on money that belongs to next year's activity.
- "We are a CIC, so we pay no Corporation Tax"Profits from trading and running-cost grants are taxable.
- Grant-funded equipment claimed as an expenseThe part paid by the grant cannot be deducted.
- No evidence of community benefitA thin CIC34 report weakens future grant applications.
- Dividends or asset transfers beyond the rulesThe dividend cap and the asset lock apply every year.
What to prepare
0 of 6 ready
One piece of advice
A CIC is a very special form, with great opportunities in Britain. Think about registering one. But remember that it pays tax like any company, and its accounts need someone who knows the accounting standards and applies them correctly.
Test yourself
1. Does a CIC pay Corporation Tax?
A CIC has no special exemption. It is taxed like any company.
2. A £12,000 grant for 12 months of salaries arrives in December. The year ends in April. How much is income this year?
December to April is five months, so £5,000 is used this year and £7,000 is carried forward.
3. A grant pays for a minibus. How is it treated for tax?
A capital grant is neither income nor a deduction.
4. What is filed with a CIC's accounts every year?
The CIC34 report goes to Companies House with the accounts.
Law and sources
- Companies (Audit, Investigations and Community Enterprise) Act 2004, Part 2The law that created CICs: community interest test and regulator
- The Community Interest Company Regulations 2005Asset lock, dividend cap and the community interest company report
- GOV.UK: community interest companies guidanceOfficial guidance from the CIC Regulator
- GOV.UK: CIC forms and step-by-step guidesIncluding the CIC34 report
- FRS 102, Section 24: Government GrantsRecognising grant income in the right period
- Capital Allowances Act 2001, section 532No capital allowances on spending met by a grant
- HMRC Business Income Manual BIM40451Grants and subsidies as trading receipts
This guide explains the rules in general terms as at 4 October 2026. It is not advice for your situation. Grant terms differ, so always check the agreement.
