Community Interest Companies (CICs) have specific tax rules that distinguish them from other business structures. Here’s an overview of the tax implications and responsibilities for CICs:
1. Corporation Tax
- General Taxation: CICs are subject to Corporation Tax on their profits, similar to regular companies. This includes profits from trading activities, investments, and any other sources of income.
- Rate: The standard Corporation Tax rate applies, which is currently 19% (as of 2024). It’s important to check for any updates or changes in tax rates.
2. Tax Reliefs and Exemptions
- Social Investment Tax Relief (SITR): CICs may qualify for SITR, which allows investors to claim tax relief on their investments. This can make it easier for CICs to attract funding.
- Charitable Status: While CICs are not charities, some CICs that meet certain criteria may benefit from relief on specific taxes, such as Business Rates.
3. Dividends
- Dividend Payments: CICs can pay dividends to their investors, but these payments must be capped. The CIC’s asset lock ensures that profits are primarily reinvested into the community or used for the CIC’s social objectives.
- Dividend Tax: Dividends received by shareholders are subject to Dividend Tax, which varies based on the income tax band of the recipient.
4. VAT (Value Added Tax)
- VAT Registration: If a CIC’s taxable turnover exceeds the VAT threshold (currently £85,000), it must register for VAT. Once registered, the CIC must charge VAT on its sales and can reclaim VAT on eligible business expenses.
- VAT Reliefs: Certain goods and services provided by CICs may qualify for VAT relief or exemptions, depending on their nature.
5. Employment Taxes
- PAYE: If the CIC employs staff, it must operate a Pay As You Earn (PAYE) system to withhold income tax and National Insurance contributions from employees’ wages.
- National Insurance Contributions (NICs): Both the employer and employees are responsible for NICs, which fund state benefits and pensions.
6. Reporting Requirements
- Annual Accounts: CICs must prepare and submit annual accounts to Companies House, which includes financial statements detailing income, expenses, and profits.
- Community Interest Company Report: In addition to the standard annual accounts, CICs must file a CIC Report, outlining how they have benefited the community over the past year.
7. Asset Lock
- Asset Lock Compliance: The asset lock ensures that the assets of a CIC are used for the community benefit. This means any assets cannot be transferred or distributed for private gain, which impacts how profits are managed and taxed.
Conclusion
Understanding the tax rules applicable to Community Interest Companies is crucial for compliance and financial management. CICs are treated similarly to other companies for most tax purposes but must adhere to specific regulations regarding profits, dividends, and community benefit. It is advisable for CIC founders and directors to consult with a tax professional or accountant to navigate the complexities of CIC taxation effectively.
