Charities Could Save Millions Through the CIC Structure

Here’s something that keeps me awake at night. The Charity Finance Directors’ Group recently submitted a proposal to government asking for permission to widen their trading activities. They want to be able to generate more earned income without the constraints of charity law. They’re spending time, money and political capital trying to solve a problem that already has a solution.

It’s called a Community Interest Company.

I don’t say that to be flippant. I genuinely believe that many charities — particularly those facing funding cuts in the coming spending review — could save themselves millions of pounds and hours of frustration by understanding what a CIC can do for them.

Let me give you a concrete example. Charities have to absorb VAT. They can’t pass it on. For a charity with significant trading activity, that can amount to hundreds of thousands of pounds a year in irrecoverable VAT. A CIC, on the other hand, can pass on VAT in the normal way. Set up a CIC as a trading subsidiary, and suddenly that cost becomes recoverable.

Then there’s the wider structural question. The CIC legislation was originally designed, in part, to be a subsidiary vehicle for charities. A charity that wants to trade commercially, enter into contracts, or take on investment can do all of those things through a CIC subsidiary while keeping its charitable status intact. The CIC’s asset lock provides the same assurance of social purpose that the charity’s own constitution provides. And the CIC’s ability to issue shares, pay dividends (within the cap), and attract investment opens up funding options that charities simply don’t have on their own.

I spoke about this at the CIC Forum last week, and the response from the charity representatives in the room was telling. Most of them simply hadn’t considered the CIC route. Not because they were opposed to it, but because no one had explained it to them.

That’s an information gap we need to close. The spending review is coming. Public sector contracts are going to be cut. Charities are going to need every tool in the box to survive and adapt. The CIC structure is one of the most powerful tools available — and it’s sitting there, ready to use, largely unnoticed.

If you’re a charity trustee or finance director and you haven’t looked at the CIC model yet, now might be the time. The solution to your trading problem already exists.