Blog

Do CICs pay corporation tax? Yes — and here’s what that means

By Buzz Accounting · 2026-07-13

Here is a conversation we have most weeks with a new CIC founder: “We’re a social enterprise, so we don’t pay tax — right?” Wrong, and it is an expensive thing to discover at your first year-end, because by then the surplus has usually been spent on the mission and there is nothing left to pay the bill with.

The core fact

A Community Interest Company is an ordinary company for tax purposes. It pays corporation tax on its profits at exactly the same rates as any other company: 19% on profits up to £50,000, 25% above £250,000, with marginal relief tapering between the two. Those limits are divided by the number of associated companies you have — so a CIC sitting alongside a trading company under common control gets a smaller 19% band than its founders expect.

The asset lock and the community purpose change what you may do with a surplus. They do not change whether it is taxed. Only registered charities get the broad corporation tax exemption, and a CIC is explicitly not a charity.

Why the confusion is so common

“Social enterprise”, “not-for-profit” and “community interest” are descriptions of mission and structure. None of them is a tax status. HMRC looks at legal form, and the legal form of a CIC is “company”. A CIC can be run on an entirely not-for-profit basis and still owe corporation tax on a surplus it happens to generate.

The contrast with a charity is sharper than most founders realise. A charity’s primary-purpose trading is exempt, and even its non-primary-purpose fundraising trading escapes tax under the small trading exemption where turnover stays inside the limits: £8,000 where total income is under £32,000, 25% of total income where income is between £32,000 and £320,000, and a cap of £80,000 once income exceeds £320,000. A CIC has no equivalent threshold. Its first pound of surplus is in charge.

Reinvestment is not a tax shield — timing is

“We reinvest everything” is the most common answer and the most misunderstood. Corporation tax is charged on profit, and profit is income less allowable costs incurred in the period. Money genuinely spent on delivering the mission during the year — salaries, sessional workers, premises, programme costs — reduces the profit. Money sitting in the bank at year-end labelled “for next year’s project” does not.

Worked example — the surplus that turned into a tax bill. Illustrative figures for a CIC with a 31 March 2027 year-end.

Income for the year is £186,000. Costs — two part-time staff, sessional workers, premises, insurance and delivery — come to £158,000. The surplus is £28,000, and the directors have earmarked all of it for a minibus to reach outlying villages.

Corporation tax at 19% on £28,000 is £5,320, payable by 1 January 2028 — nine months and one day after the year-end. The CT600 return itself is not due until 31 March 2028, so the money leaves before the paperwork is even filed.

Buy the minibus in April 2027 and the Annual Investment Allowance gives full relief on it — but in the year to 31 March 2028, not the year that generated the surplus. The £5,320 is still due. Buy it before 31 March 2027 instead, and the allowance covers the qualifying expenditure in the year the surplus arose: corporation tax on that surplus, nil.

Same purchase, same money, three weeks apart, £5,320 of difference. One caveat: the Annual Investment Allowance covers up to £1 million of plant and machinery a year but excludes cars, so a minibus qualifies and a director’s car would not.

That example is the whole discipline in miniature. CIC tax planning is about knowing your surplus before the year closes rather than after — which is why we report to CIC boards quarterly rather than handing them a number in month eleven.

Keeping the bill low, legitimately

Know which income is trading income. A contract to deliver a service is trading income. A genuine, unconditional donation with nothing supplied in return is not. Getting that split right on the CT600 changes the number, and it is the part general small-business bookkeeping will not do for you.
Capture every allowable cost. The same discipline as any company: volunteer expenses, mileage, use of home, professional fees, insurance, DBS checks. Photographed at the point of spend, not reconstructed in month fourteen.
Use capital allowances deliberately. The Annual Investment Allowance gives immediate full relief on up to £1 million of qualifying plant, equipment and vehicles other than cars — which makes the date of purchase a genuine decision, as above.
Pay your directors properly. CIC directors can be paid, subject to your articles and to the regulator’s expectation that remuneration is reasonable and disclosed in the CIC34. Salaries and employer National Insurance are deductible costs; a company cannot have drawings, so money taken any other way creates a problem rather than a deduction.
Revisit the structure honestly. If your model is grant- and donation-funded for a clearly charitable purpose, the corporation tax exemption, Gift Aid and 80% mandatory business rates relief available to a charity can outweigh a CIC’s speed and control. Our structure guide sets the two side by side, and how to set up a CIC covers the mechanics if you stay put.

What a CIC has to file, and when

Two regulators, two clocks, and the tax is due before the return that calculates it.

Companies House, within nine months of your year-end: your accounts, plus the CIC34 community interest report explaining what you did for the community and what you paid your directors, plus a £15 fee. A confirmation statement is separate, at £50 filed online or £110 on paper.
HMRC, within twelve months of the end of your accounting period: the CT600 company tax return with accounts and tax computations attached. The corporation tax itself is due three months before that — nine months and one day after the period end.

The penalties are worth knowing precisely, because they escalate on a timetable rather than a judgement. A late CT600 costs £200 immediately, another £200 at three months, 10% of the unpaid tax at six months and another 10% at twelve — and the £200 penalties rise to £1,000 each if you file late three returns running. Late-paid tax carries interest at 7.75%, set at the Bank of England base rate of 3.75% plus four percentage points. Late accounts at Companies House cost £150 up to a month late, £375 from one to three months, £750 from three to six and £1,500 beyond that — doubled if you also filed late the previous year. Miss the CIC34 and you are answering to the Regulator of Community Interest Companies, which is a slower and more serious kind of problem than a fine.

The asset lock, and what can be paid out

A CIC limited by shares can pay dividends, but only inside the asset lock: the maximum aggregate dividend is 35% of distributable profits, so at least 65% stays in the company or goes to the community it was set up to serve. Dividends paid to another CIC or to a charity named in the articles fall outside the cap.

Two practical points follow. Distributable profits are what remains after corporation tax, so the tax comes first and the 35% applies to the remainder. And a CIC limited by guarantee — the more common form for community projects — has no shares at all and so pays no dividends; the only routes out are reasonable director remuneration and spending on the mission. Your articles decide which company you are, and a surprising number of founders have never read them.

What to do this week

Look up your accounting reference date on the Companies House register and count forward nine months and one day. That, not your filing date, is when the money has to be there.
Run a rough surplus for the year to date — income received less costs incurred. If it is positive, you have a corporation tax liability building.
If there is a surplus and equipment or a vehicle you were going to buy anyway, decide deliberately whether the purchase belongs before or after the year-end.
Check the CIC34 is diarised alongside the accounts. It is a separate document, a separate £15, and a separate regulator.

None of this is an argument against being a CIC — it is a brilliant structure for mission-led businesses that want to move quickly and keep control. It is an argument for going in with the corporation tax planned rather than discovered. That is exactly what our social-sector packages handle, from £39 + VAT a month.

Quick answers

About this post

Do CICs pay corporation tax on grant income?

It depends on what the grant is for, not what it is called. A grant that is really payment for delivering a service — a commissioned contract described as a grant — is trading income and forms part of your taxable profit. A genuine grant or donation given unconditionally, with nothing supplied in return, is not trading income. Restricted grants that fund specific costs usually match against those costs in the same period, so they do not create a surplus on their own. The practical risk is a grant received in March for work delivered in June: the cash is in and the costs are not, so the year-end surplus looks far bigger than the reality.

How is a CIC different from a charity for tax?

A registered charity has a broad exemption from corporation tax on income applied to charitable purposes, can claim Gift Aid on eligible donations, and gets 80% mandatory relief on business rates. A CIC gets none of those. A charity’s non-primary-purpose trading is also protected by the small trading exemption — £8,000 of turnover where total income is under £32,000, 25% of income between £32,000 and £320,000, capped at £80,000 above that. A CIC has no equivalent threshold, so its first pound of surplus is taxable. What a CIC gets in exchange is speed of incorporation, director control, and the ability to pay its founders for the work they do.

When does a CIC have to pay its corporation tax?

Nine months and one day after the end of the accounting period, so a CIC with a 31 March 2027 year-end pays by 1 January 2028. The CT600 return itself is not due until twelve months after the period end, which catches people out every year: you are required to pay before you are required to file. Late-paid tax carries interest at 7.75%, which is the Bank of England base rate of 3.75% plus four percentage points. Filing the return late brings a £200 penalty immediately, another £200 at three months, and 10% of the unpaid tax at six months, repeated at twelve months.

Can a CIC pay dividends to its shareholders?

A CIC limited by shares can, within the asset lock. The maximum aggregate dividend is 35% of distributable profits, so at least 65% stays in the company or goes to the community it serves, and dividends paid to another CIC or to a charity named in the articles sit outside the cap. Two things follow. Distributable profits are what is left after corporation tax, so the tax comes first and the cap applies to the remainder. And a CIC limited by guarantee, which is the more common form for community projects, has no shares and therefore pays no dividends at all.

What does a CIC have to file each year, and what does it cost?

Three filings on two clocks. To Companies House within nine months of your year-end: the accounts, plus the CIC34 community interest report setting out what you did for the community and what the directors were paid, plus a £15 fee. Separately, a confirmation statement each year at £50 online or £110 on paper. To HMRC within twelve months of the end of your accounting period: the CT600 with accounts and computations attached, though the tax itself falls due three months earlier. Late accounts at Companies House cost £150 rising to £1,500, and the penalty doubles if you also filed late the year before.

Free · straight to your inbox

Liked this? Get the next one.

Practical charities and social enterprises tax and money tips by email — no jargon, unsubscribe any time.

No spam, no jargon. Unsubscribe any time.