CIC Accounting Rules: Dividend Caps, Form CIC34, and Audits

CIC accounting rules combine the ordinary obligations of a UK limited company with a second layer of requirements designed to prove the company still serves the community. In practice that means standard statutory accounts under UK GAAP filed at Companies House, a separate community interest company report (Form CIC34) filed alongside them, and specific disclosures covering the asset lock, any dividends declared, and any performance-related interest paid. Two regulators are watching: Companies House for the accounts, and the Office of the Regulator of Community Interest Companies for the social-purpose side.¹

How the Asset Lock Shows Up in the Accounts

The asset lock is the defining feature of a CIC. Every asset, including profits and surpluses, must be used for community benefit or retained inside the company, and the lock cannot be removed.² On the balance sheet, best practice is a separate line for asset-locked reserves so a reader can tell restricted funds apart from any distributable reserves.

If the company transfers an asset, the transfer has to be at full market value unless it goes to another asset-locked body or is made directly for the benefit of the community.³ Any below-market transfer must be disclosed in the notes, with an explanation of the community purpose it served. The Regulator uses those disclosures to check the company is not leaking value to private interests.

Dividend and Interest Caps

A CIC limited by shares can pay dividends and can borrow, but both are capped so the social mission is not hollowed out by payments to investors.

The Dividend Cap

The maximum aggregate dividend declared in any financial year is 35% of distributable profits.⁴ At least 65% of profit must therefore stay inside the company or go on community activities.² The accounts and the CIC report must show the calculation: 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 within the asset-locked sector.

The Performance-Related Interest Cap

Fixed-rate interest on loans and debentures is not capped. The cap only bites where the interest rate is tied to the CIC’s financial performance. In that case, the maximum rate is 20% of the average amount outstanding on the debt during the 12 months before the interest becomes due. The CIC report has to state the actual rate calculated over that period and the applicable cap, so the Regulator can confirm the company is within the limit.²

Breaching either cap can trigger regulatory intervention and put CIC status at risk.

The CIC Annual Report (Form CIC34)

Alongside the statutory accounts, every CIC files a community interest company report using Form CIC34.⁵ This is the narrative document that proves the company still passes the community interest test, and it sits on the public register. Even dormant CICs have to file one.

The report must cover:²

The community benefit activities carried out during the year.
Which stakeholders were consulted and the outcome of that consultation.
Director remuneration, including any benefits in kind.
The value of any assets transferred below market value and the community purpose served.
Any dividends declared and any performance-related interest paid, with the cap calculations.

Director pay deserves a closer look because the disclosure rule is stricter here than in general company law. The Regulator requires CIC reports to disclose director remuneration even for small CICs that would otherwise be exempt from that detail.⁶ The logic is that if a company trades on community benefit, the public should be able to see what is going to the people running it. Pay that looks disproportionate to the company’s activities will attract an inquiry.

Filing Deadlines and Late Penalties

Statutory accounts must reach Companies House within nine months of the financial year-end.⁷ The CIC report is filed with the accounts through the same process.⁸ Miss that deadline and the penalties escalate automatically:

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

The penalty doubles if accounts are filed late in two successive financial years.⁹ A CIC that is more than six months late two years running is therefore looking at £3,000 the second time. A pattern of late filings can also prompt the Regulator to open its own investigation into whether the company is still operating for community benefit.¹⁰

Which Accounting Standard Applies

CICs prepare accounts under UK GAAP, with the specific standard depending on company size. Size is set by meeting at least two of three criteria: turnover, balance sheet total, and average employee numbers. For financial years beginning on or after 6 April 2025, the monetary thresholds rose by roughly 50% to catch up with inflation since 2013.¹¹ The updated thresholds are:

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

Whichever standard applies, the CIC-specific disclosures around the asset lock, the caps, and the annual report still have to be made. Dropping into a smaller size bracket reduces standard disclosures but not the CIC ones.

When an Audit Is Required

A CIC that qualifies as a small company is exempt from a mandatory statutory audit under the Companies Act 2006.¹² With the updated thresholds, most CICs sit comfortably within that exemption. The company’s own articles can still require an audit, and the CIC Regulator holds a separate power to require one or commission a special report where it has concerns about the asset lock or the community interest test.¹⁰ Even without a statutory audit, directors remain personally responsible for ensuring the accounts give a true and fair view and include every required CIC disclosure.

Tax Is Not Treated Like a Charity

A CIC does not get charity tax treatment. Trading profits are taxed at the same corporation tax rates as any other limited company: 19% up to £50,000, 25% above £250,000, and marginal relief in between.¹³ CICs cannot claim Gift Aid and do not get the stamp duty reliefs available to charities.

VAT follows the ordinary rules. A CIC must register when taxable turnover exceeds £90,000 in any rolling 12-month period, or when it expects to exceed that figure in the next 30 days alone.¹⁴ Some smaller CICs delivering exempt supplies such as education or healthcare may fall outside VAT, but that depends on the supply itself rather than the CIC structure. Build a full tax provision into the accounts; HMRC gives no discount for social purpose.

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