SLCVO Blog 17 April

This weeks blog brings together practical guidance for community groups and social enterprises, covering charity trading, starting a social enterprise, funding options in Scotland, and support programmes like Just Enterprise. It also explains the key differences between charities and Community Interest Companies (CICs), helping groups understand their options and decide which structure is right for their purpose, plans, and capacity.

Team Update

This week was busy with a mix of strategic and local meetings, responding to new enquiries from groups, and updating the SLCVO website.

On Monday, Jo‑Anne joined the Skye and Raasay Future (SARF) Board Meeting, bringing partners together to reflect on progress and look ahead to the priorities shaping the area. SARF is the region’s Area Place Plan, developed in 2021 it plays a vital role in ensuring local voices influence decision‑making and that resources are aligned with what communities say they need. SLCVO is a board member of SARF and hosts the quarterly meetings. This latest session focused on reviewing progress in community engagement, partnership working and strategic coordination. Board members discussed how to strengthen connections with development trusts and community councils, improve alignment between plans and projects, and ensure SARF continues to add value as a place‑based strategic forum. The meeting also explored future investment priorities, community benefit arrangements, and emerging changes in health and social care that could have significant implications for rural and island communities. Overall, discussions reinforced the importance of collaboration, clear communication and keeping community needs firmly at the centre of strategic decision‑making. For more information about Skye and Raasay Future, visit Skye and Raasay Future (SARF)

Matt’s focus this week has been on putting the final touches to the new Community Outreach Hubs, launching at Dunvegan Village Hall on 23 April. He has been working closely with partner organisations to promote the event and make sure everyone involved has the full details for the day. This first hub will be a great opportunity for partners to meet, connect and begin building strong working relationships. It will also give residents of Dunvegan and the Duirinish peninsula the chance to drop in, see what services are available locally, access support, or simply come along for a chat and a cup of tea in a relaxed, welcoming space. For more information about the Community Outreach Hubs, visit Skye & Lochalsh Community Hubs | SkyeandLochalshCVO

Michelle and Jo‑Anne supported a number of groups with new enquiries this week. This included exploring the setup of a charity trading subsidiary, rewriting articles of association, developing a social enterprise, signposting to relevant support services, and providing help with drafting a trustees’ annual report.

Mid‑week, Jo‑Anne hosted the Community Social Care & Wellbeing Forum, with a strong focus on Adult Services. Discussions explored the increasing complexity of adult mental health needs, ongoing gaps in support for unpaid carers, and potential changes to adult social care. The forum also shared updates on the rollout of Community Outreach Hubs, highlighted upcoming local events and training opportunities, and signposted new social policy reports on fuel poverty and food insecurity. Wider strategic developments shaping health and social care across Highland were also outlined. You can read the full forum notes here: Forum Notes 15 April

Charities and Trading: What You Need to Know

Many charities and community groups raise income by selling goods or services, from running a café or hiring out a hall, to selling tickets, training or crafts. This kind of income‑generation is often called “trading”, and it can be a valuable way to support a charity’s work. However, in Scotland there are important rules about how charities can trade, and these are set out by OSCR, the Scottish charity regulator.

What does “trading” mean for a charity?

Trading usually means selling something for a fee. OSCR recognises that many charities need to trade to be sustainable, but trustees must make sure any trading activity is allowed, managed properly, and supports the charity’s overall purpose.

OSCR groups charity trading into three broad types:

• Primary purpose trading is where selling goods or services directly helps a charity achieve its aims, such as a care charity charging fees for services, a theatre selling tickets, or a charity selling items made by the people it supports; this is usually fine for charities to do themselves as long as any profits are reinvested in the charity.

• Ancillary trading supports the charity’s work but doesn’t directly deliver its purpose, for example selling refreshments at events or materials to course participants, and is normally treated as part of the charity’s core activities.

• Non‑primary purpose trading is carried out to raise funds but is not charitable in itself, such as running a charity shop, operating a café open to the public, or hiring out a building for private events unrelated to the charity’s aims, and this often requires more careful consideration or a separate trading arrangement. OSCR guidance explains that this type of trading often needs to be carried out through a separate trading company, rather than directly by the charity, to protect charitable assets and manage risk.

What is a trading subsidiary?

A trading subsidiary is a separate company that is set up and owned by a charity to carry out certain trading activities, particularly those that do not directly support the charity’s aims. While the charity controls the subsidiary (often as the sole shareholder), the subsidiary is legally separate and has its own responsibilities and governance arrangements. 

The main reason a charity might use a trading subsidiary is to protect the charity from financial and legal risk. If a trading activity makes a loss, builds up debt, or faces legal challenges, those risks stay with the subsidiary rather than putting the charity’s funds and assets at risk. This is especially important for activities like running a café, shop, or commercial lettings that operate in a competitive market.

Any profits made by the trading subsidiary can be passed back to the charity, usually through a donation. This means the income generated still supports the charity’s work, while the activity itself is carried out in a safer structure. The charity must ensure that this arrangement genuinely benefits the charity and aligns with its purposes.

When charities take part in trading, they need to think about tax, and this works in two different ways. Direct taxes (like Income Tax or Corporation Tax) are based on whether the activity counts as trading and whether it makes a profit. VAT, on the other hand, is based on what goods or services are being supplied and whether those supplies count as business activity. Because the rules are different, charities need to understand both direct tax and VAT when deciding how to organise their trading, to make sure everything is set up correctly from the start.

The SCVO website has very good guidance about:

• Trading Trading - SCVO

• Tax and VAT Tax & VAT - SCVO

• They also have a webinar on YouTube Charities and trading subsidiaries

You can read OSCR’s full charities and trading guidance here: OSCR – Charities and Trading Guidance

Starting a Social Enterprise: Laying a Good Foundation

A social enterprise is a business that exists to make a positive difference, rather than to maximise profit for private individuals. In Scotland, social enterprises are set up to help address social, environmental or community needs, such as improving wellbeing, supporting local jobs, strengthening communities or protecting the environment. Any profits they make are reinvested back into their social purpose, rather than being paid out to shareholders or owners.

Social enterprises can take many forms and sizes – from small, local community cafés and childcare providers to larger organisations delivering care, training or environmental services. They allow organisations to combine trading income with social impact, helping them become more financially sustainable and less dependent solely on grants. They also empower communities by creating local jobs, delivering services that matter, and keeping money circulating locally. Across Scotland, social enterprises play a particularly important role in rural and island areas, where they help sustain services and opportunities that might otherwise be lost.

A social enterprise can be set up as:

• A limited company

• A charity or Scottish Charitable Incorporated Organisation (SCIO)

• A Community Interest Company (CIC)

• A co‑operative or community benefit society

• A sole trader or partnership

The right structure depends on how the organisation plans to operate, trade and manage risk.

Getting started with a social enterprise means first making sure there’s a real need for what you want to do. A good idea won’t get very far if only a handful of people are involved or if it’s based on assumptions rather than evidence. Taking time to talk to people, listen to different views, and find out what the community actually wants and needs is essential. Researching what already exists, involving local people early on, and understanding where any gaps really are will give your idea a much stronger foundation By doing your homework, asking the right questions, and learning from what’s worked (or not worked) before, you’ll be far better placed to decide whether your idea is realistic, needed, and worth taking forward.

Support for social enterprises in Scotland

If you’re exploring whether a social enterprise might be right for your group or community, it’s important to think carefully about your purpose, community need and legal structure SLCVO can support you in this contact info@slcvo.oerg.uk to chat about how we can help you

There is a strong support network in Scotland for social enterprises at all stages. National and local organisations offer advice, training, leadership programmes, funding and social investment. Key sources of support include:

• Firstport – https://www.firstport.org.uk/

• Just Enterprise – https://justenterprise.org/

• Social Enterprise Scotland – https://socialenterprise.scot/

• Highlands and Islands Enterprise – https://www.hie.co.uk/

You can read the full Scottish Government guidance here: Setting up a social enterprise – mygov.scot

Steps to Start Up -  Just Enterprise e‑learning programme

Starting a social enterprise can feel exciting—but also overwhelming. You might have a strong idea and a clear sense of purpose, but not be sure where to begin or what to tackle first. Just Enterprise’s “Steps to Start Up” e‑learning programme is designed to support people at this early stage, helping turn ideas into practical, well‑thought‑through plans.

The programme is a free, self‑paced online course made up of eight short modules, developed by international experts and tailored specifically for social entrepreneurs. It’s ideal if you’re exploring a new idea, developing a product or service, or thinking about starting up an organisation with a social or environmental purpose.

What does the course cover?

The course takes you step‑by‑step through the journey of starting a social enterprise:

• Defining the problem you want to tackle and understanding why it matters

• Planning your social impact, including how change will happen and who will benefit

• Building support, from forming a strong team to engaging partners and allies

• Testing your ideas, so you don’t waste time or money on something that won’t work

• Finding your customers and understanding your market

• Designing a business model that balances impact and income

• Securing funding, including understanding different finance options

• Getting ready to launch, covering legal basics, finances and branding

Each module is broken into manageable chunks, making it easier to fit learning around busy lives and existing commitments.

One of the biggest strengths of the programme is its focus on testing and learning early. Rather than jumping straight into a full launch, it encourages you to gather feedback, refine your idea, and adapt as you go. This approach helps reduce risk and builds confidence before committing significant time or resources.

Because it’s online, you can work through the course at your own pace, return to sections when needed, and apply the learning directly to your own idea. The content is practical, clear and designed with social enterprises and enterprising charities in mind, rather than generic business start‑ups.

Who is it for?

Steps to Start Up is suitable for:

• People with an early‑stage idea they want to explore

• Community groups considering becoming more enterprising

• Charities looking to develop a new income‑generating service

• Anyone thinking about starting a social enterprise for the first time

No prior business experience is required—just curiosity, commitment and a willingness to learn.

How to get started

You can find out more and sign up to the e‑learning programme on the Just Enterprise website. The course is free to access, and support is available if you want help applying what you’ve learned to your own situation.

Find out more about Steps to Start Up: Just Enterprise – Steps to Start Up

Funding for Social Enterprise Set Up in Scotland

Scotland offers several funding options for setting up social enterprises. Here are some of the key funding programs available:

The Community Enterprise Fund is a small grants programme designed to help community‑led organisations take their first steps into trading or social enterprise. It offers funding of up to £5,000 to support groups to test ideas, develop products or services, and start generating their own income. The fund is particularly aimed at organisations that want to become more financially sustainable and reduce reliance on grant funding, while delivering clear benefits for their community.  You can find out more about eligibility, what the fund can support, and how to apply on the Firstport website:

https://www.firstport.org.uk/funding/community-enterprise-fund/

Start It is an early‑stage funding programme designed for individuals with ideas for businesses that tackle social, environmental or community challenges. It offers grants of up to £5,000 to help budding social entrepreneurs turn their ideas into reality, covering early costs such as testing ideas, developing products or services, or setting up the foundations of a new enterprise. Start It is ideal for people who are just beginning their journey and need a practical boost to get their social enterprise up and running. You can find out more about the fund and how to apply on the Firstport website:

https://www.firstport.org.uk/funding/start-it/

The Social Investment Fund supports social enterprises, community organisations and charities across Scotland that are ready to grow or scale their impact. It provides blended finance, combining loans and grants, with investments ranging from £10,000 to £250,000 per organisation. Up to 25% of the total investment can be provided as a grant, helping reduce risk and making finance more accessible for organisations delivering social or community benefit. The fund is aimed at organisations with a clear plan for income generation and long‑term sustainability. More information about the Social Investment Fund, including eligibility and application details, is available on the Firstport website: https://www.firstport.org.uk/funding/social-investment-fund/

Find Business Support is a helpful one‑stop website that brings together information on grants, loans, funding, advice and practical support available to businesses across Scotland, including social enterprises and enterprising charities. It allows organisations to search by location, sector or stage of development, making it easier to find relevant support such as funding opportunities, business advice, training and guidance from national and local providers. It’s a useful starting point for anyone looking to explore what support is available and where to get help next. You can explore the site here: https://www.findbusinesssupport.gov.scot

Charity or CIC? Understanding the Difference

Charities and Community Interest Companies (CICs) are two common legal structures for organisations working for community benefit in Scotland.

What Is a Charity?

A charity is an organisation set up only for charitable purposes that benefit the public. These purposes might include things like:

• Reducing poverty

• Improving health and wellbeing

• Supporting children, families, or older people

• Education, arts, culture, or the environment

In Scotland, most charities are regulated by the Office of the Scottish Charity Regulator (OSCR).

Key features of a charity

• Must exist only to deliver public benefit

• Cannot make profit for private gain

• Any money made must be reinvested in the charity’s work

• Can receive donations and grants

• Can claim tax benefits, including Gift Aid

• Has stricter rules and reporting requirements

Charities are often seen as highly trusted by the public, funders, and donors.

What Is a Community Interest Company (CIC)?

A Community Interest Company (CIC) is a type of limited company designed to benefit the community rather than private shareholders. CICs are regulated by Companies House and the CIC Regulator. They must pass a “community interest test” and have an asset lock, which means their assets and profits are mainly locked in for community benefit.

Key features of a CIC

• Set up to benefit the community

• Can trade, sell services, and earn income

• Can make some profit, but it must mostly go back into community benefit

• Cannot access Gift Aid

• Has fewer tax reliefs than a charity

• More flexible and business‑like

Find out more about charities here OSCR | Home

Find out more about CICs here Office of the Regulator of Community Interest Companies - GOV.UK

Charity or CIC? How to Decide Which Structure Is Right

One of the most common questions asked when new community ideas begin to take shape is: “Should we set up a charity or a CIC?” It’s a crucial decision. The structure chosen at the outset influences how an organisation is funded, governed, and able to grow over time. There is no universally “better” option in Scotland – only the structure that best fits the organisations purpose and way of working.

Start with purpose, not structure

The first consideration should always be the organisations purpose and who benefits from the work.

If an organisation exists exclusively to:

• Relieve disadvantage

• Support people experiencing hardship

• Advance health, education, or community development

then charitable status is often appropriate.

If the focus is instead on:

• Trading to deliver social benefit

• Delivering paid-for services to the community

• Generating income alongside social impact

a CIC may be a more suitable structure.

In Scotland, charities must operate only for charitable purposes. CICs do not have this restriction, they simply need to demonstrate clear community benefit.

Consider independence and control

A major practical difference lies in governance and accountability.

Charities (often SCIOs)

• Are overseen by trustees who carry full legal responsibility

• Are regulated by the Office of the Scottish Charity Regulator (OSCR)

• Must ensure all decisions clearly advance their charitable purposes

This level of accountability builds public trust but does limit flexibility.

CICs

• Are led by directors with greater operational freedom

• Are regulated on a lighter-touch basis

• Focus on community benefit rather than charitable purposes

For organisations that need to respond quickly, pilot new ideas, or adapt their model as they learn, CICs often allow more flexibility.

Funding matters – but it is not the only factor

Funding is frequently the deciding factor, but assumptions about access should be tested carefully.

Charities can:

• Access a wider range of trusts and foundations

• Claim Gift Aid on eligible donations

• Benefit from strong public confidence and recognition

CICs can:

• Access many community and social enterprise funding programmes

• Trade freely without restrictions on “commercial” activity

• Earn income without expectations that work remains non-trading

A useful question to ask is:

Will this organisation rely mainly on grants and donations, or on earned income and contracts?

Grant-dependent models often suit charities, while mixed or trading-heavy models are often better suited to CICs.

Think about the long-term vision

Another key question is: What might this organisation look like in five or ten years?

• Will it become a service provider?

• Will it employ staff or win public contracts?

• Might it develop significant trading activity?

If growth, trading, or service delivery are central to the long-term vision, a CIC may be the most flexible starting point – with the option to introduce charitable status later if needed.

Conversely, if the aim is to build a trusted, community‑led anchor organisation, a SCIO may be the best fit from the outset.

Sometimes the answer is “both” – just not at the start

In Scotland, many organisations operate with:

• A charity to hold mission, trust, and grant funding

• A CIC or trading arm to generate income

However, starting with multiple structures can add unnecessary complexity. In most cases, it is better to begin with a single structure that meets immediate needs. A common recommendation is: Choose the structure that fits today’s reality, not a hypothetical future.

Final Thoughts

Choosing between a charity and a CIC is not about status – it is about fit. Strong community impact is delivered through both structures across Scotland. Problems tend to arise not because the “wrong” structure was chosen, but because the structure did not align with how the organisation actually worked.

Clarity of purpose, honesty about capacity, and realism about sustainability are the most important foundations. The right legal structure will not create impact on its own – but it can either support the work or quietly make it harder than it needs to be.

If you have an idea for a community group and want help in where to start contact SLCVO info@slcvo.org.uk 

Or take a look at our online guides Starting a New Group 

This blog was produced with support from Microsoft Copilot