A guide to third sector trading - WCVA

It’s an idea, but is it business? A guide to third sector trading
1: Getting
started
2: First steps 3: Business
planning
4: Legal and
governance
5: Funding
and
resourcing
6: Financial
controls
7: Managing
growth
8: Management
and
governance
9: Social
enterprise
10: Sources
of support
• The ‘CIC club’: The government hoped that the CIC would
become a recognised format for social enterprise trading. This
seems to be happening rather slowly, but there is a modest
cachet in groups being able to say they are members of a small
club using the latest legal structure.
• Flexibility: CICs offer almost everything that ordinary
companies limited by guarantee and companies limited by
shares can already do.
The ‘charity lock’ – some disappointments for smaller
enterprises: The idea that CICs are a way of encouraging social
enterprise seems somewhat questionable for the many small
struggling trading organisations in the third sector which find
themselves bound to charitable status as the surest way of
surviving. It’s not that there’s anything wrong with CICs – just that
many people won’t want to use them and many of those who do
will find that that they don’t make much difference. (Tax breaks
for CICs and VAT regulations to benefit third sector organisation,
on the other hand, could have changed the climate and improved
the prospects for new as well as established enterprises.)
• Corporation tax: CICs do not enjoy any of the tax advantages
of charities. For many small community trading ventures (which
often depend on the support of volunteers) charity tax relief
may be the difference in their early years between survival and
failure. This particularly applies to charities with mixed sources
of income and a trading turnover of less than £50,000. There
will be few if any advantages for them in converting from
charities to CICs and starting to pay corporation tax.
• Flexibility and constitutional simplicity: Enterprises which
for tax reasons cannot afford to be CICs will be stuck with the
restrictions of charity law and the existing messy constitutional
structures for charity trading.
• Duplicating the charity asset lock: The main innovation of
CICs is the asset lock, which is already an essential aspect of
charitable companies. So enterprises which are able and happy
to trade as charities (or through trading subsidiaries owned by a
charities) will see little advantage in CICs.
Benefits for larger and expanding enterprises: The main
beneficiaries of the legislation which created CICs will be larger
and expanding enterprises (not necessarily all of them in the
third sector), who will doubtless find that the asset lock makes it
easier to access loans to invest in their development and to attract
private sector partners to help extend the scope of their activities.
The problem, of course, is that the legislation makes it no easier for
small enterprises to grow into bigger ones in the first place.
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