Doing good and getting paid

22 hours ago
4 min read

How a social enterprise actually works financially

One of the questions I hear most often — usually from people who've already spent money trying to answer it — is this: "I want to do something good, but I also need to make a living. How does that actually work?"

It's the right question to ask. And the frustrating thing is that it often gets answered badly, or not at all, by people who charge quite a lot for the privilege.

First: what actually is a social enterprise, legally?

A social enterprise isn't a single legal structure — it's a term that describes how an organisation operates: trading for a social purpose, reinvesting profits into that purpose, and being accountable to the community it serves.

In practice, most social enterprises in the UK register as one of the following:

Community Interest Company (CIC) — the most common structure for social enterprises. A company limited by shares or guarantee, with a statutory "community interest test" and an asset lock built in.
Charitable Incorporated Organisation (CIO) — a newer structure that combines charity status with a simpler legal form. More on this below.
Co-operative — member-owned, with profits distributed to members rather than external shareholders.
Company limited by guarantee with charitable status — a traditional route, though increasingly being replaced by the CIO.

The right structure depends on your mission, your income model, and your long-term plans. Getting this right at the outset matters — and it's something CAP helps people think through every week.

Can you pay yourself?

Yes. Emphatically, yes.

One of the most persistent myths about social enterprise is that the people who run them should work for nothing — as if financial sustainability for the founder somehow contradicts the social mission. It doesn't. A social enterprise that doesn't pay its people properly is not sustainable, and an unsustainable organisation helps nobody.

As a director of a CIC, you can draw a salary just as you would in any other company. You can also pay staff, cover operational costs, and invest in growth — all of this is entirely consistent with the social enterprise model.

What you can't do is extract unlimited profit for personal gain. That's where the asset lock comes in.

The asset lock — what it actually means

The CIC asset lock is the mechanism that ensures the organisation's assets and profits are used for the community benefit purpose, not siphoned off for private gain. In practice, this means:

Dividends to shareholders are capped (currently at a maximum of 35% of distributable profits, with individual shareholders limited to a 20% return on the amount paid for their shares)
If a CIC is wound up, its remaining assets must be transferred to another CIC or charity — they can't simply be distributed to founders or directors
The asset lock is regulated by the CIC Regulator and is a statutory requirement, not just good practice

This is one of the key differences between a CIC and a standard limited company — and it's also part of what makes the CIC model credible to funders, commissioners and the public.

How does tax work?

A CIC is subject to Corporation Tax on its profits, just like any other company — currently 25% on profits above £250,000, with a lower rate for smaller profits. There's no automatic tax advantage to being a social enterprise unless you also hold charitable status, in which case you'd be looking at Gift Aid on donations, business rates relief, and exemption from Corporation Tax on certain income.

This is one of the reasons the choice between a CIC and a charitable structure matters: charities have significant tax advantages, but more regulatory restrictions on trading activities. A CIC has more trading freedom, but fewer tax reliefs.

For VAT, the same rules apply as any business — if your turnover exceeds the VAT threshold (currently £90,000), you'll need to register. Some services — particularly in health, education and welfare — may be exempt from VAT regardless of turnover, which is worth checking for your specific activities.

The CIO — worth knowing about

A Charitable Incorporated Organisation sits in between a traditional charity and a CIC. It has full charitable status (and therefore charitable tax advantages), but a simpler legal structure than a company limited by guarantee. It's not right for every organisation, but for those whose primary income comes from donations, grants and Gift Aid-eligible activities, it can be a very sensible choice.

We recently started supporting Headcorn Community Sports and Leisure to explore their start-up options. Having considered their plans and income targets carefully, we introduced them to the CIO as an alternative to a standard charity registration — and it proved to be the right fit. They defined the journey they wanted to take. We helped them choose the right vehicle.

That's what getting the structure right looks like in practice.

The question nobody asks until it's expensive

The most common reason people end up with the wrong legal structure is that they never properly mapped out their income model first. A structure that works well for a grant-funded community project may be entirely unsuitable for an organisation that wants to win public sector contracts or attract social investment.

Before you spend money on registration — accountant's fees, legal costs, filing — get clear on a few things:

Where is your income going to come from?
Will you seek charitable donations? Or trade primarily?
Do you want to attract outside investment in the future?
What do your commissioners or funders expect?

The answers to those questions will point you toward the right structure more reliably than almost anything else.

And if you'd like to think it through with someone who has helped hundreds of organisations make exactly this decision — the free 45-minute advice session is the place to start. Getting the structure right from the beginning saves a significant amount of time, money and stress later.