CIC vs charity: which structure should you choose?

A charity gets substantial tax exemptions, gift aid and access to funders who only give to charities, in exchange for tighter regulation, unpaid trustees and restrictions on trading.

A CIC gets speed, commercial freedom, paid directors and the ability to raise investment where limited by shares, in exchange for paying corporation tax like any other company.

Charities pay no tax on income applied for charitable purposes, claim gift aid on qualifying donations, and get mandatory business rates relief of 80%. Non-primary purpose trading beyond the small exemption is taxable, which is why charities use trading subsidiaries.

CICs pay corporation tax at 19% to 25% on trading profit, cannot claim gift aid, and get no automatic rates relief. Many grant funders do fund CICs, but the largest charitable trusts often will not.

Charity trustees are generally unpaid and cannot benefit from the charity except in tightly controlled circumstances. If the founders need to earn a living from the organisation, that is a genuine obstacle.

CIC directors can be paid reasonable salaries, disclosed annually in the CIC 34. Founders retain more practical control, which is why social entrepreneurs often start as a CIC.

A CIC is registered at Companies House with Regulator approval, usually within days, and files accounts plus the CIC 34 each year.

A charity registers with the Charity Commission, which takes longer and requires exclusively charitable objects, a suitable governing document and a trustee board. Ongoing reporting is heavier, including the trustees' annual report and SORP accounts.

Some organisations run a charity for grant-funded and donated activity, with a trading subsidiary or associated CIC for commercial work, donating profit up under gift aid.

That structure costs two sets of filings, so it should follow real funding streams rather than be set up speculatively.