CICs as a Trading Arm for a Charity

Using a CIC as a charity trading arm

A standard Community Interest Company (CIC) can be a smart choice of structure for a charity that wishes to purse trading or other commercial activities as means of raising income.

• Best for: Charities looking to run commercial activities separately from their core operations.

• Structure: A CIC set up as a separate legal entity from the charity, which can gift its profits to the charity.

Key Features:

Unlike in the rest of the UK, a CIC in Scotland cannot be a registered charity itself. However, a charity can own a CIC as a subsidiary to generate trading income.

Commonly used for activities like retail, hospitality, or consultancy that generate unrestricted funds for the charity (see below).

Why Choose It?

By setting up a separate CIC it allows a Scottish charity to separate commercial risks from its core charitable activities. This then enables the charity to undertake trading activities that might not qualify under charity regulations.

Using a CIC Limited by Shares (CLS) as a Charity Trading Arm

A CIC Limited by Shares (CLS) can be an ideal structure for a charity's trading arm, where the charity itself is the sole shareholder. This allows the CIC to operate commercially, while ensuring that all profits (after tax) are transferred to the charity rather than being distributed to private individuals.

Since charities have restrictions on commercial trading, setting up a CIC trading subsidiary ensures that non-charitable activities do not put the charity’s regulatory or tax status at risk.

Key Features & Benefits:

• Legally Separate Entity: The CIC operates independently from the charity, protecting the charity from financial or legal risks associated with trading activities.

• Unrestricted Income: Unlike charities, which face restrictions on how they generate and use income, the CIC can engage in commercial trading without affecting the charity’s tax-exempt status.

• Asset Lock & Community Focus: The CIC must still ensure that its activities benefit the community and that assets are used for its social mission.

• Profits Gifted to the Charity: The CIC can donate its profits (via Gift Aid) to the charity, reducing the amount of corporation tax it pays.

• Sustainability & Growth: Provides a long-term funding stream for the charity, reducing reliance on grants and donations.

Common Uses:

• Retail & E-commerce: A charity operating shops or an online store.

• Training & Consultancy Services: Providing courses, advisory services, or skills development.

• Property Management: Renting out space or facilities to generate income.

• Catering or Hospitality Ventures: Running cafés or event services that align with the charity’s mission.

By structuring the CIC as a CLS with the charity as the sole shareholder, charities in Scotland can legally separate their commercial activities while ensuring that all profits still contribute to their charitable mission.