Regulator to consult on CIC dividend caps

Thirty-five per cent limit on dividends 'could be barrier to investment'

The regulator of community interest companies will consult in the spring on whether caps on what CICs can pay out to investors need to be raised to help them attract investment.

CICs can distribute only 35 per cent of their annual surpluses as dividends, and payment rates cannot be more than five percentage points above the Bank of England base rate.

Similarly, performance-related interest, where the return on investments varies according to the performance of the company, can rise to only four percentage points above the base rate.

Sara Burgess, the CIC regulator, said she recognised that the caps could be a barrier to investment, but added that they were one reason many organisations had chosen to become CICs.

She said she needed more evidence before deciding if the caps should be adjusted. "I need as many suggestions as I can get," she said.

Rod Schwartz, chief executive of social investment consultancy Catalyst, said it was imperative the caps were raised: "With the current base rate of 1 per cent, CICs can pay investors only 6 per cent. That is ridiculously low for something that is very high-risk."

Nigel Kershaw, chief executive of social investment firm Big Invest, said if the caps remained, it should at least be possible to roll them over to the next year. "Otherwise, CICs will be driven by yearly returns like normal companies, not by sustainable growth," he said.

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