CIC Association

Serving Community Enterprise

We are an established charity looking to move to the CIC model to better reflect the management structure, and give the leadership control over the company.

We are looking at setting up a parallel CIC and winding down the existing charity (though I suspect we'll need to keep the charity as the nominated asset locked body)

Any advice on the following questions to manage the transition would be very welcome:

1. Can the CIC just take over the charity's agreed sales programme and receive direct income - for example we have an agreement with a client to deliver a programme worth £4k per month for six months. The charity is wound up after 2 months. Can the CIC be voted the continuing sales revenue, or is this a case of signing a new agreement with the client?

2. Is it in order for the charity to spend money on people, services, and other things that will be used to the benefit of the CIC? So the charity pays all the costs until it runs out of money, but the income is received by the CIC? Or would it be more appropriate for the charity to make a grant to the CIC?

3. Can staff be transferred from one entity to another without losing any benefits and rights of employment (I suspect this is probably covered by the TUPE regulations)

4. Can the IP of Ladder the charity, be transferred across to the CIC. - i.e. trade marks, existing programmes

5. With all of the above issues where is the best place to go to understand the exact mechanism required what is required in terms of board resolutions, changes to articles of association etc

6. Would HMRC under any conditions consider a CIC limited by shares a “non-profit making organisation” (this is relevant to out VAT status as an exempt body

Thank you,
Chris

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Replies to This Discussion

Hi Chris,

1. If you move the contract from the charity to the CIC then this is a sale of an income stream and unlikely to be one that is tax free (charity sales which are pursuant to its charitable objectives are tax exempt, the position on sale of that income stream could be different). Better the charity to subcontract the delivery to the CIC. Best to do this whilst telling your client what you are doing.

Once this contract is expired you can sign the new contract with the CIC no problem.

2. Tricky one. I would say that the grant option is better, on the basis that if the charity appears to pay expenses on behalf of the CIC those expenses would need to be for the charitable objectives. Expenses related to actually running or setting up the CIC could be argued to not be within the charitable objectives and so not allowed.

I am not an expert on this, there are others who will know more.

3. Broadly, staff will *have* to be transferred undere TUPE with all rights protected.

4. IP would have to be transferred at market value for charity purposes (I think). This may give you thorny tax issues. Might be better to licence it to the CIC.

5. Not my speciality sadly

6. Some Inspectors will, some will not. Sorry that does not help much!

 

Alastair

Thanks Alistair I appreciate you taking the time

Chris

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