Understanding the differences between charities and community interest companies (CICs)
When we are approached by someone fundraising on the street, we will often assume that they are collecting for a charity. While this will usually be the case, it’s becoming increasingly more common for other organisations, most notably Community Interest Companies (CICs), to be fundraising from the public for good causes.
Both charities and CICs serve to benefit the community, but they operate under different legal rules and reinvest profits differently. It’s important that members of the public know where their money is going and how it will be used by the organisation doing the fundraising. Understanding the key differences between charities and CICs can help donors make an informed decision about whether to donate to a particular cause.
What is the purpose of charities and CICs?
Charities are organisations established exclusively in law for charitable purposes and must provide a public benefit. Their activities can include areas such as education, poverty relief, healthcare, and the advancement of the arts. Charities are typically providers of relief or services without a commercial objective.
CICs are a type of limited company designed to benefit the community rather than private shareholders. They can engage in commercial activities and generate profits, but the majority of profits must be reinvested into the community or the CIC’s social objectives. They are businesses with a social mission. CICs that do street fundraising can look and feel very similar to charities, but they should not say they are fundraising for charity.
Who regulates charities and CICs?
Charities are regulated by the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator, or the Charity Commission for Northern Ireland, depending on their location. They must adhere to strict reporting and accounting standards, which help to promote transparency and public trust. This helps provide assurance about how funds raised are used.
CICs are regulated by the CIC Regulator and Companies House. They are required to pass a ‘community interest test’ to ensure their activities benefit the community. CICs must prepare an annual report to demonstrate their ongoing community benefit but their regulation is much more light touch than the regulation of charities.
Fundraising by charities, and organisations with entirely or predominantly charitable, philanthropic and benevolent objectives, such as CICs, is regulated by the Fundraising Regulator through the Code of Fundraising Practice . Charities and CICs must fundraise in a legal, open, honest and respectful way, and, they must follow the rules set out in the code.
How do charities and CICs distribute profit?
Charities must reinvest all income into their charitable objectives and cannot distribute profits. This ensures that all resources are used for public benefit.
CICs have an ‘asset lock’ which means that their assets and profits must be used for the community’s benefit. They can distribute some profit in the form of dividends, but this is capped at no more than 35% of the CIC’s profits. This ‘business model’ can help CICs attract investment while ensuring that the majority of profits are reinvested into their social mission.
How are charities and CICs treated for tax?
Charities can claim a range of tax reliefs, including, Gift Aid, business rates relief, Corporation Tax Relief, Inheritance Tax Relief, and VAT reliefs. Gift Aid in particular can be attractive to donors as it increases the value of donations and offers them tax relief at the same time.
CICs do not enjoy the same tax benefits as charities. Like charities, CICs can access a variety of funding sources, including grants and social investment, but donations will be less tax efficient for some donors.
Who is fundraising?
It’s important that donors can make an informed decision about whether to donate to a particular cause. This includes understanding the purpose of the organisation doing the fundraising and how money raised is used and reinvested.
Charities and CICs must say what type of organisation they are on fundraising materials such as signs, websites, and printed material. Charities must include their registered charity number on all fundraising materials. Similarly, CICs must provide the company’s name on all company documents, publicity and letters.
Both CICs and charities need a licence from the local authority or the Metropolitan Police (if in London) to raise money on the street, or permission from the owner to fundraise on private sites. They must also make clear whether they are asking for donations or selling something which might require a street trading licence, which they would need to apply for with the relevant local council.
Donors can check if an organisation is committed to good fundraising practice by looking out for the Fundraising Badge on fundraising materials, and by checking the Fundraising Regulator’s online Directory to see if an organisation is registered with us.