CIC Accounting Rules: Asset Lock, Dividend Caps, and CIC34

A Community Interest Company keeps its books under the same UK GAAP rules as any other limited company, but bolts on extra requirements that prove the business is still working for the community: an asset lock reflected in the balance sheet, caps on dividends and performance-related interest, a mandatory annual CIC report filed alongside the accounts, and full corporation tax and VAT liability with none of the reliefs a charity would enjoy. Two regulators watch the filings. Companies House handles the statutory accounts and confirmation statement, while the Office of the Regulator of Community Interest Companies checks the community interest test and the asset lock.¹ The CIC accounting rules below cover what each of those regulators expects to see.

The Asset Lock on the Balance Sheet

The asset lock is the feature that sets a CIC apart from an ordinary limited company. Every asset, including profits and surpluses, must be used for community benefit or retained inside the company, and the lock cannot be removed.² Best practice is to show a separate line for “asset-locked reserves” on the balance sheet so anyone reading the accounts can distinguish restricted funds from any distributable reserves.

Transfers of assets have to happen at full market value so the company keeps the economic benefit. The only exceptions are transfers to another asset-locked body or transfers made directly for the community’s benefit.³ Any below-market transfer must be disclosed in the notes with an explanation of the community purpose served. The Regulator reads those disclosures to check that value is not leaking to private interests.

Caps on Dividends and Interest

Dividends

A CIC limited by shares can pay dividends, but the total declared in a financial year cannot exceed 35% of distributable profits.⁴ At least 65% of profits must therefore stay in the company or be spent on community activities.² The accounts and the CIC report must show the working: dividends declared, distributable profit, and the resulting percentage. Dividends paid to another asset-locked body are generally exempt from the cap, since the money stays in the asset-locked sector.

Performance-Related Interest

Fixed-rate interest on loans and debentures is not capped. The cap only bites when interest is linked to the company’s financial performance, and in that case the maximum rate is 20% of the average amount outstanding on the debt in the 12 months before the interest becomes due. The CIC report must state the actual rate calculated over that period and the applicable cap so the Regulator can verify compliance.²

Breaching either cap can trigger regulatory action and put the company’s CIC status at risk.

The CIC34 Annual Report

On top of the statutory accounts, every CIC files a community interest company report using Form CIC34.⁵ It is a narrative document, it goes on the public register, and it is how the company evidences that it still passes the community interest test. The report must cover:²

What the company did during the year to benefit its community.
Which stakeholders it consulted and what came of that consultation.
Pay and other benefits received by each director.
The value of any assets transferred below market value and the community purpose served.
Details of any dividends declared and any performance-related interest paid, with the cap calculations.

Most CICs use the simplified version of the CIC34. The detailed version is reserved for companies with more complex arrangements, such as those paying performance-related interest.⁵ Even a dormant CIC files a report.

Director remuneration deserves a note of its own. CIC directors are not volunteers by default, and the Regulator specifically requires disclosure of what they are paid, including for small CICs that would otherwise be exempt from that level of detail under general company law.⁶ Pay that looks disproportionate to the company’s activities is likely to attract an inquiry.

Filing Deadlines and Penalties

Accounts must reach Companies House within nine months of the financial year-end.⁷ The CIC report goes in through the same filing.⁸ Miss the deadline and Companies House issues an automatic penalty that escalates with delay:

Up to 1 month late: £150
1 to 3 months late: £375
3 to 6 months late: £750
More than 6 months late: £1,500

Penalties double when accounts are filed late in two successive years.⁹ A second consecutive filing more than six months late therefore costs £3,000. Beyond the money, a pattern of late or missing filings can prompt the Regulator to open an investigation into whether the company is still operating for the community’s benefit.¹⁰

Which Accounting Standard Applies

The standard depends on size, and size is measured against turnover, balance sheet total, and average employee numbers. A company must meet at least two of the three tests for a given category. For financial years beginning on or after 6 April 2025, the monetary thresholds went up by roughly 50% to reflect inflation since they were last set in 2013.¹¹ The updated tests are:

Micro-entity: turnover no more than £1 million, balance sheet no more than £500,000, and no more than 10 employees. Eligible companies may use FRS 105.
Small company: turnover no more than £15 million, balance sheet no more than £7.5 million, and no more than 50 employees. These use FRS 102 Section 1A, a reduced-disclosure version of the main standard.
Medium and large: companies above the small thresholds use full FRS 102. Medium thresholds (turnover up to £54 million, balance sheet up to £27 million) affect certain filing exemptions.

Whichever standard applies, the CIC-specific disclosures for the asset lock, the caps, and the CIC report still have to be made. Falling into a smaller size band cuts the volume of general financial disclosure but does not touch the CIC layer.

Audit

A CIC that qualifies as a small company is exempt from a statutory audit under section 477 of the Companies Act 2006.¹² With the updated thresholds that covers most CICs, since the company has to exceed at least two of the three small-company limits before audit becomes compulsory. A company’s own articles can require an audit anyway.

The CIC Regulator holds a separate power to require an audit or commission a special report where it has concerns about the asset lock or the community interest test.¹⁰ Whether or not an audit is mandatory, directors stay personally responsible for accounts that give a true and fair view and include all required CIC disclosures.

Corporation Tax and VAT

CICs are not charities. Trading profits are taxed at ordinary corporation tax rates: 19% on profits up to £50,000, 25% on profits above £250,000, and marginal relief in between.¹³ A CIC cannot register for Gift Aid and does not get the stamp duty relief available to charities.

VAT works the same way it does for any other company. Register once taxable turnover exceeds £90,000 on a rolling 12-month basis, or when you expect to exceed that in the next 30 days alone.¹⁴ Smaller CICs delivering exempt services such as education or healthcare may find their supplies fall outside VAT, but that turns on the nature of the supply, not on the CIC structure.

Budget accordingly. The social purpose earns no discount from HMRC, so tax provisioning in the accounts has to be as accurate as it would be for any commercial company.

1
GOV.UK. About – Office of the Regulator of Community Interest Companies
2
GOV.UK. Community Interest Companies Guidance
3
Office of the Regulator of Community Interest Companies. Asset-Locked Body: Mystery Revealed
4
Legislation.gov.uk. The Community Interest Company Regulations 2005, Regulation 22
5
GOV.UK. CIC34 – Community Interest Company Report
6
GOV.UK. CIC Directors Remuneration
7
GOV.UK. Accounts and Tax Returns for Private Limited Companies
8
Companies House. File Your Annual CIC Report and Accounts
9
GOV.UK. Late Filing Penalties
10
Office of the Regulator of Community Interest Companies. Regulator’s Status, Role, Function and Location
11
Financial Reporting Council. FRC Releases Updates to Reflect Reporting Threshold Amendments
12
Legislation.gov.uk. Companies Act 2006, Section 477
13
GOV.UK. Corporation Tax Rates and Allowances
14
GOV.UK. How VAT Works: VAT Thresholds