Choosing between a CIC or CIO

How to choose the right business structure

Introduction

We get asked this question a lot. While there are many differences between a Community Interest Company (CIC) and a Charitable Incorporated Organisation (CIO), only you can know what is best for you and your group.

In this article, we will cover:

• What the key differences are

• Examples of CIC’s and CIO’s in the real world

• How to begin without registering at all

Key differences

Understanding the reasons why these two business structures were created can help to appreciate the differences between them. CIC’s were launched in 2005 as a way for people to quickly set up community benefit Companies where the directors can pay themselves. In comparison, CIOs were introduced in 2013 to make registering a Charity easier by only reporting to one governing body, the Charity Commission.

CIC’s are Companies that must register with Companies House.

CIO’s are Charities and they can register with the Charity Commission.

The following information provides an overview of the differences, with a focus on what is required during annual filing.

Registering

CIC: Launching a CIC is a simple process on Companies House. Once registered, you can search for your company details on the company register.

CIO: Setting up a CIO is a lengthy process as the Charity Commission must confirm that your aims meet their charitable purposes. Once registered, your organisation’s details will be listed on the register of charities.

Directors and trustees

CIC: Only needs one director who has autonomy over running the organisation and who can be paid.

CIO: Need a minimum of three trustees who oversee the running of the organisation who are not paid for their time.

Annual accounts

CIC: Must have annual accounts prepared by an accountant. Accounts must be submitted to Companies House 9 months after your year end date.

CIO: Can prepare their own accounts, though will require an accountant to complete an independent examination if the income is above £25,000. An audit will be required if the income exceeds £1 million. Accounts must be submitted to the Charity Commission 10 months after your year end date.

Tax

CIC: Will need to submit a corporation tax CT600 submission  to HMRC and pay tax on profits made each year.

CIO: Might be asked to submit a corporation tax return by HMRC, but on the whole will not pay tax if all activity is charitable.

Other annual submissions

CIC: You will also need to submit a confirmation statement, something all companies must do. This asks you to confirm that the company and director details are up to date. In addition, you will need to submit a CIC34 report. This asks you to outline what you did in the year and the impact those activities had on the community. There will be fees to file these each year.

CIO: All CIOs must complete an annual return on the Charity Commission website to confirm that the charity and trustee details are up to date. The annual accounts must be filed with a trustees’ annual report. This details your charity’s work, where your money comes from, and how you’ve spent it. Both of these are free to submit.

CIC’s and CIO’s in the real world

Now that you have a better appreciation of the technical differences between registering and running CICs and CIOs, it’s useful to look at their practical applications in the real world. This might help you to understand which is the best fit for you.

Examples of CIC’s

The Carousel CIC is a co-working space in Nottingham. They offer specialist printmaking facilities, private event hire, and creative workshops. Their income comes from co-working memberships, room hire and event tickets, and their two directors are their two paid members of staff.

Ashfield Community Enterprise CIC is a subsidiary of the charity Ashfield Voluntary Action. They provide volunteering opportunities through a craft shop, and snack kiosk at the local health centre. They generate income from sales and have no paid staff.

Examples of CIO’s

Aurora Wellbeing Centres is a CIO that provides free support, group activity and beauty therapy to people living with cancer. Their income is generated through fundraising and legacies, grants, and trading income from a shop and café.

Grantham Foodbank is a CIO that redistributes food and toiletries to people in need and provides volunteer opportunities. They receive income in the form of one-off and regular donations from individuals and businesses.

How to begin without registering at all

If you have an idea for a charitable organisation, you can run as an unregistered community group until your income exceeds £5,000 per year. Once you hit this limit, you are obliged to formally register your organisation with the Charity Commission. This allows you to start running a small community group to test the water, however you may decide to formally register an organisation from the start if you plan to apply for grants or employ staff.