Payment cap lifted for community interest companies

CIC regulator responds to consultation by lifting limits on amounts that can be distributed to investors

The Regulator of Community Interest Companies has decided to raise the limits on payments they can make to investors.

CIC regulator Sara Burgess announced today that she would raise the dividend cap to 20 per cent of each share and the loan interest cap to 10 per cent of the value of the loan.

The dividend cap was previously five percentage points above the Bank of England base rate, while the interest cap was four percentage points above the base rate.

A consultation last year showed that most social investors thought the caps were too low.

The total proportion of profits a CIC can distribute will remain unchanged at 35 per cent.

The regulator's response said:"In broad terms, the responses to the regulator's consultation indicated that the maximum dividend rate per share was too low given the level of risk.

"The 1 per cent differential between debt and equity finance may not give adequate incentive to investors to make an equity investment; and the interest and dividend-per-share caps were too complex."

Burgess said she would review the changes in two or three years to find out how effective they were.

John Mulkerrin, co-founder of the CIC Association, a membership group for CICs, said the initial response to the news was positive.

"There's not a lot of money going into CICs in share capital at the moment," he said. "The new, higher dividend could open up new opportunities to attract investors - something the negativity of the cap prevented before.

"This has been a good piece of work by the regulator."

Equity Plus, which specialises in finding investment for social enterprises, said it would now be much easier for CICs to attract outside investment.

"The new caps are not only more generous but are significantly simplified - so far these have been the two big barriers to investors engaging with CICs," a spokesman for the organisation said. "Equity Plus welcomes these changes and believes that CICs will now become a structure of choice for social enterprises."

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