Community Interest Company Tax Reliefs

I was at the launch of the RSA’s Social Enterprise Network earlier this week where I bumped into Phil Conway of Cool2Care. Cool2Care is a successful start-up social enterprise which is growing quickly and looking at possibly making its first profit. Phil was vociferous in his condemnation that Community Interest Companies (“CICs”) do not enjoy the tax reliefs that charities do. Apparently the reason they do not is because it was felt that there should be a level playing field between CIC’s and small or medium sized private companies (“SMEs”). This contrasted glaringly with Phil’s view that his competition was charities – not SMEs.

Level Playing Field

I have to say I agree with Phil. It seems obvious to me that CICs are more similar to charities (both have a regulated social mission, both are allowed to trade, both have their assets are locked into being used for the social mission) than they are SMEs (no asset lock, no social mission, very little regulation).

Tax Reliefs

Personally I think there should be a complete overhaul of the tax system in the UK so take into account social mission as well as profit, preferably attempting to measure the social performance in the process (Social Value Tax Credits – outlined in previous posts).

However, it did occur to me that it would be so incredibly simple to extend the charity tax reliefs to CICs. I would not propose a blanket relief from tax for CICs (even charities do not enjoy this) but simply apply the same rules to CICs such as

• Primary Purpose Trading exempt from tax
• Other minor trading income exempt from tax
• Investment or Property income exempt from tax

I honestly cannot see why this should not be done. However, despite the talk in the election about the Big Society I think it will be a long time before such reliefs are extended to CICs.

Being Practical

The alternative to a long-term lobbying plan is to simply get on with it and there ways and means that CICs can get out of paying tax. The easiest way is to donate the profits to a charity that supports similar aims to yourselves. The downside of this is that the money is no longer within your control and you don’t build up reserves to get you through future tough times.

These fears can be eased by setting up a charity under your control with suitably wide social objectives that allow it to support the business in the future. The charity could then grant the money back to you (for you to do nice things with), or it could loan it back to you, or it could contract with you to deliver a service for it. Any of which could get you through the trobuled waters. This does involve regulatory burden, dobule the number of meetings you attend and might be closer sniffed over by the regulators, but there’s nothing wrong with it (just make sure you get the VAT right, and be careful over the timing of the donation).

I know it shouldn’t be this way. But sometimes it is quicker to go round than through.

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