Can I Convert a Community Interest Company into a Charity

Setting up a Community Interest Company is a popular way for social enterprises to operate with a clear community purpose while still having the flexibility of a company structure. As the organisation grows many founders begin to ask whether they can convert their CIC into a charity. This is usually because they want access to wider funding streams, additional tax reliefs and a stronger public profile that comes with charitable status.

In my opinion this is one of the most common questions among social entrepreneurs once they reach the stage where they want grant funding or long-term sustainability. Yet the answer is not as simple as many expect because a CIC cannot be converted into a charity in the same way a normal company can change its articles. Instead the process requires more structural change and in most cases leads to the creation of a brand new charity with assets transferred from the CIC.

This article explains exactly how it works. You will learn whether a CIC can convert, what the law says, the realistic options available, the steps you can take, the tax and governance implications and the pros and cons of attempting the transition. I will also walk through real world scenarios to help you see which route fits your organisation best.

By the end you will have a clear understanding of your choices so you can make an informed decision that protects your mission and complies with UK regulation.

What a CIC Is and Why Many Consider Converting

A Community Interest Company is a special type of limited company designed for social enterprises that want to operate commercially while ensuring their profits and assets are used for the public good. CICs are regulated by the CIC Regulator and must pass the community interest test. They also have an asset lock which prevents profit or assets being distributed to members or shareholders beyond limited levels.

A charity is a completely different legal model. It must be exclusively charitable in purpose, fall within the charitable purposes defined by the Charities Act 2011, and be regulated by the Charity Commission. There are strict rules on trustee benefits, governance, reporting and the use of assets.

Many CICs consider becoming charities because:

They want access to grants only available to registered charities
They want greater public trust
They want additional tax reliefs
They want to reassure funders that the organisation is strictly non profit
They want to simplify governance and reduce suspicion of commercial influence

In my opinion the motivation usually comes down to funding. Grant providers often prefer registered charities over CICs even though CICs have strong governance in their own right.

Can a CIC Convert Directly Into a Charity

The short answer is no. You cannot convert a CIC into a charity in the same way you might change a limited company into a different structure. The CIC legal form and the charity legal form are fundamentally incompatible because:

A CIC must have a community interest statement and asset lock overseen by the CIC Regulator
A charity must have only charitable purposes and be overseen by the Charity Commission
CICs can pay directors within limits but charities restrict trustee benefits
The asset lock in a CIC is different from the asset lock required in a charity
The statutory framework for CICs is based on company law while charities are governed by charity law

So even though both structures are mission driven the law treats them differently.

HMRC guidance makes clear that a CIC cannot simply change articles and become a charity. The Charity Commission also confirms that CICs do not qualify for charity registration because their permitted activities are wider than charitable purposes.

This means that if you want your organisation to become a charity you must do it by restructuring not converting.

What You Can Do Instead: The Two Practical Options

Although you cannot convert a CIC directly you do have two realistic routes.

Option 1: Create a new charity and transfer the CIC’s assets into it

This is the most common and often the most practical method. You create a brand new charity structured as:

A Charitable Incorporated Organisation (CIO)
A Charitable Company Limited by Guarantee
A charitable trust

You then transfer some or all of the CIC’s assets, operations and staff into the new charity. The CIC may then:

Continue operating in a reduced form
Pause activity
Wind up once the transfer is complete

In my experience this route works well because the new charity starts with a clean slate and can be designed properly from scratch. The CIC can remain as a trading arm if the charity needs one which is a common arrangement for commercial activity.

Option 2: Use the CIC as a trading subsidiary of a newly created charity

Many organisations do this for tax and governance reasons. The charity becomes the parent body and the CIC becomes the trading arm.

This can be helpful when:

The CIC already carries out commercial trading
The founders want the benefits of charitable status without losing commercial flexibility
The CIC generates profit that can be gifted to the charity under Gift Aid

In my opinion this structure offers the best of both worlds although it introduces more governance and reporting because you are operating a group structure.

How the Transfer of Assets Works in Practice

If you choose to set up a new charity and move assets across you must follow the asset lock rules. The CIC asset lock requires that assets must be transferred:

To another asset locked body such as a charity or another CIC
Or used for the benefit of the community

You must seek permission from the CIC Regulator if the type of asset transfer requires it. Most transfers to a charity are allowed because charities automatically qualify as asset locked bodies.

The steps usually look like this:

Set up the new charity with appropriate trustees
Draft a transfer agreement
Transfer assets such as equipment, cash, contracts, intellectual property and staff
Notify the CIC Regulator
Update Companies House filings
Update funders, clients, partners and HMRC where required

Employment transfers are typically handled under TUPE rules.

The process must be documented carefully because both regulators expect clear evidence of compliance.

Will HMRC Treat the New Organisation Differently

Yes. Charities get tax benefits that CICs do not including:

Exemption from corporation tax on most income
Access to Gift Aid
Business rates relief
VAT exemptions for specific charitable activities
Eligibility for charitable grant funding

This is one of the biggest advantages of restructuring.

CICs do not benefit from these tax advantages although they have their own credibility and governance strength.

Real World Examples

To help make the process clearer here are realistic scenarios based on common situations.

Example 1: A CIC running wellbeing workshops

A CIC delivers mental health and wellbeing programmes to the community. It wants to access NHS and local authority grants restricted to charities.

The founders set up a new CIO
They transfer the CIC’s assets and operations into the CIO
The CIC is wound up
The new charity continues the work with full access to grant funding

This is the most straightforward route.

Example 2: A CIC with significant commercial trading

A CIC operates a café that trains vulnerable adults while also generating commercial income.

The organisation creates a new charity
The café remains inside the CIC
The charity receives profits via Gift Aid
The charity runs the training and support services

This split structure satisfies funders who prefer charities while keeping commercial trading separate.

Example 3: A CIC that wants charitable status for credibility

A CIC delivering youth programmes wants the trust and status associated with being a registered charity. Funding is not the main issue. Instead credibility with parents and community matters.

They create a new charity
They transfer the work across
The CIC ceases to operate
The charity becomes the main body

In my opinion this route is chosen when perception matters as much as funding.

Pros and Cons of Converting a CIC into a Charity

Transitioning from a CIC to a charity brings advantages and disadvantages. Understanding these helps you choose the right model.

Pros

Access to broader funding
Many trusts, foundations and government schemes only fund registered charities.

Higher public trust
Charities are often seen as more transparent and community focused.

Tax advantages
Gift Aid, corporation tax exemptions and business rates relief can significantly reduce costs.

Clearer governance rules
Charity law sets strict trustee duties which can increase accountability.

Better long-term sustainability
Charities are often more attractive to donors and long-term funders.

Cons

You cannot directly convert
You must restructure which takes time and planning.

Stricter rules on payments to trustees
Charity trustees normally cannot be paid which may restrict your organisational model.

Reduced flexibility
Charities must operate strictly within charitable purposes.

More regulation
The Charity Commission and HMRC both have oversight obligations.

Higher governance burden
Policies, safeguarding, reporting and auditing requirements increase.

In my opinion the biggest drawback is trustee payment restrictions. CICs allow paid directors which gives founders more flexibility. Once you move to charitable status you must accept stronger limitations.

Governance Implications You Must Consider

Moving from a CIC to a charity changes your governance model significantly. Charity trustees:

Must act only in the best interests of the charity
Cannot receive financial benefit unless strictly approved
Must avoid conflicts of interest
Must report annually to the Charity Commission
Must ensure compliance with the Charities Act

If founders currently work in the CIC as directors and receive salaries it may be necessary to restructure roles so they become employees rather than trustees. This is allowed although roles must be clearly separated.

Should You Convert or Create a Charity From the Beginning

A surprising number of founders regret starting as a CIC because they later realise a charity would have been more suitable. Others start as a charity then wish they had chosen a CIC because they want more commercial freedom.

In my opinion the structure you choose depends entirely on your funding model and mission.

Choose a CIC if you want:

Commercial flexibility
Paid directors
Fewer limits on trading
Simpler set up
Faster decision making

Choose a charity if you want:

Access to charitable grants
Higher public trust
Tax advantages
A strong asset locked governance model
A structure that reassures partners and donors

If you already run a CIC you can still transition effectively but you must be ready for governance and operational change.

Alternatives to Converting a CIC to a Charity

If you are unsure about full conversion you can consider alternatives:

Create a charity but keep the CIC as a trading arm
Rebrand the CIC to appeal more to funders
Partner with a charity for grant funded work
Use fiscal hosting where a charity applies for funds on your behalf
Expand your mission while remaining a CIC

I often see organisations succeed with a hybrid model where the charity is the main body and the CIC remains as a trading subsidiary for commercial activity.

Step by Step Summary of the Conversion Route

Although there is no direct conversion you can follow this structure:

Review your activities and confirm they meet charitable purposes
Draft a clear charitable object
Choose the right charity structure such as a CIO or company limited by guarantee
Prepare governing documents
Register with the Charity Commission
Prepare transfer documentation
Transfer assets from the CIC
Update Companies House
Notify suppliers, partners and HMRC
Decide whether to close the CIC or keep it as a trading arm

Conclusion

A CIC cannot be directly converted into a charity although you can restructure effectively by creating a new charitable body and transferring assets, staff and activities. This approach is widely accepted by the CIC Regulator and the Charity Commission and is a common path for social enterprises looking to access tax reliefs, greater credibility and broader funding.

In my opinion the choice between staying a CIC or becoming a charity depends entirely on your funding model and governance preferences. If your organisation relies heavily on grants and public trust a charity may be the right long-term option. If you value commercial flexibility and the ability to pay directors the CIC structure may remain the better fit.

If you take time to understand the legal framework and plan your transition carefully you can create a structure that combines mission protection with long-term financial sustainability.