Guide to operating a CIC

Background

As you will be aware a CIC is a limited company which operates for the benefit of the community. The main difference between a limited company and a CIC is that the CIC is there to benefit the community primarily and not solely to generate a profit.

The operation of the CIC follows the same general principles of a limited company;

The CIC is a separate legal entity and as such can enter into legally binding contracts, own assets and take on liability in the same manner as a limited company
The CIC will continue to exist regardless of any changes to Directors and management
The directors can be both paid or unpaid and they carry the same rights and duties as directors of a limited company.

Becoming a Director of a CIC

As a director you are legally responsible for ensuring that the CIC operates in line with the Memorandum & Articles of Association and maintains that community interest. As well as the day-to-day operation of the CIC you must also ensure that the legal requirements of the CIC are met for Companies House and HMRC purposes. These duties include;

Filing Annual Accounts at Companies House (the deadline is 9 months after your year-end)
Completing a Corporation Tax Return (the deadline is 12 months after your year-end)
Filing a Confirmation Statement each year
Advise Companies House of any changes in officers or a change in personal details
Advise of any changes to the Registered Office
Completion of the Community Interest Report (form CIC 34) outlining how the CIC has satisfied its community interest purposes

As you can see the list is quite substantial and we would point out that whilst you can engage accountants to help with all these matters, the responsibility ultimately lies with the Directors of the CIC.

Accounting and your CIC

Operating a CIC should be approached in the same way as a business and it is essential that you get into good financial habits from the outset.

Key things for you to consider;

Separate business bank account – the money does not belong to the directors it belongs to the CIC
Payroll and pensions – if you employ anyone you will need to ensure you operate payroll correctly and keep up to date with current HMRC and pension legislation
VAT – depending on the type and amount of income you may need to consider the requirement to register for VAT
Book-keeping – you will be required to keep accurate records of the income and expenditure of the CIC to enable the annual accounts to be prepared. You will also need to ensure that any expenditure is only incurred in an appropriate manner to meet the CIC’s community objectives
Asset lock – this is a very important area with a CIC. Any retained profits and assets owned by the CIC are locked into being reinvested into the community or being passed to another asset locked organisation (not shareholders as is the case with a limited company)

Frequently asked questions

1. Can directors of a CIC be paid a salary?

Yes, a reasonable salary can be paid for their work. You must ensure that you comply with all relevant legislation (for example – Minimum Wage, PAYE, Pension and Working Time Regulations)

2. Do we have to have an accountant?

Technically there are no legal requirements to have an accountant. However, they will be a tremendous help to ensure all HMRC and Companies House are complied with. Without an accountant our experience suggests it is very difficult to fulfil all your obligations.

3. Can we pay expenses?

A CIC can reimburse expenses to directors and volunteers providing they are incurred in connection with the activities of the CIC. Your accountant will be able to advise you on what is a reasonable qualifying expense.

4. What are my personal responsibilities as a director?

As well as the legal obligations of operating the CIC each director will also be required to complete a Self-Assessment Tax Return on an annual basis which they are personally responsible for. Again, this is something an accountant would be able to assist with.