One of the most common questions we’re asked by CIC founders is:
“Can I pay myself as a director?”
The short answer is yes — but how and how much you pay yourself matters.
CICs exist to deliver social benefit, and while that doesn’t mean directors must work for free, it does mean that payments must be transparent, reasonable and clearly linked to the organisation’s mission.
What the Law Says
The CIC Regulator allows directors to be paid, but only within certain boundaries. The key principles are:
Payments must be reasonable and proportionate to the work done.
They must be for services provided — whether that’s running the company, delivering activities, or specific roles.
They must be authorised in the company’s Articles of Association.
They must not undermine the CIC’s community interest purpose.
If you’re a director and shareholder, you may also receive dividends, but these are subject to the strict 35% cap on distributable profits.
Ways Directors of a CIC Can Be Paid
1. Salary as an employee
If a director is working for the CIC day-to-day, they can be employed and receive a salary like any other staff member.
You must register for PAYE and make tax and NI deductions.
The salary must reflect the work done and be comparable to similar roles elsewhere.
It’s good practice to document the role and hours clearly.
2. Fees for specific services
If a director provides professional services (e.g. consultancy, training, accounting), the CIC can pay them for that work — even if they’re not an employee.
A written agreement should set out the services and fees.
The payment must still be reasonable and in the CIC’s interests.
This should not become a backdoor to excessive remuneration.
3. Dividends (if limited by shares)
If the CIC is a company limited by shares, shareholder-directors may receive dividends.
Total dividends are capped at 35% of distributable profits.
Any dividends must be formally declared and documented.
Dividends cannot replace salary for work done.
Transparency and Governance: Getting It Right
CICs are held to higher standards of accountability, so it’s essential to:
Record all director pay decisions in board minutes.
Include details of payments in your CIC34 annual report.
Be ready to show that payments are reasonable, necessary, and support your community purpose.
It’s also wise to have a remuneration policy approved by the board, setting out how and when directors can be paid.
Common Mistakes to Avoid
Paying directors without board approval or without updating the Articles.
Paying above-market salaries that can’t be justified.
Paying “consultancy” fees with no written agreement.
Treating dividend payments as a salary substitute.
How Director Payments Should Be Made (and What HMRC Expects)
It’s not just whether you pay directors that matters — it’s how you do it. HMRC treats directors differently from other workers, and getting this wrong is one of the most common compliance mistakes CICs make.
Here’s what you need to know:
1. Salary or remuneration – must go through PAYE
If a director is working for the CIC in any regular capacity — managing operations, delivering services, or fulfilling their duties as a director — HMRC treats them as an office holder. That means any payment they receive for that work is classed as employment income and must be processed through PAYE.
You must register as an employer with HMRC.
Tax and National Insurance must be deducted and reported through RTI.
Payslips should be issued and employment records maintained.
Even if a director does not have a formal employment contract, they are still an office holder, and payments for their services as such fall under PAYE rules. Paying them by simple bank transfer or “honorarium” without payroll is not compliant and risks HMRC penalties.
2. Dividends – the only widely accepted alternative
If your CIC is limited by shares and the director is also a shareholder, they may receive part of their income as dividends. Dividends are not payment for work — they are a distribution of profit — and they are subject to very specific conditions:
They must be paid from post-tax profits (after corporation tax).
They must be formally declared by the board and recorded in the minutes.
A dividend voucher must be issued.
Total dividends across all shareholders must stay within the 35% cap set by CIC regulations.
Any dividend is included in the director's self assessment
Dividends cannot be used to replace a salary for work done. Paying only dividends to someone who is actively working in the business is likely to be challenged by HMRC.
Final Thoughts
Running a CIC doesn’t mean you have to work for free — but it does mean putting community benefit first. Director pay is perfectly legitimate when it’s transparent, fair, and linked to the work you do.
Handled properly, it supports sustainability and helps your CIC grow. Handled badly, it can undermine trust and even risk regulatory action.