Interim Dividends let a company distribute profits before shareholders approve a Final Dividend. Under standard model Articles of Association, directors can decide to pay Interim Dividends. Therefore, shareholders normally do not need a separate resolution.
Companies can also pay more than one interim dividend during a financial year. However, every company should check its own articles first, as they may contain different rules or restrictions.
Read more: Dividends Explained by Accountants
How Interim Dividends Differ from Final Dividends
Directors usually decide whether to pay an interim dividend. By contrast, shareholders usually declare a final dividend after a directors’ recommendation. This difference also affects when each dividend becomes payable.
HMRC states that directors can vary or cancel an interim dividend before payment. Consequently, payment timing matters for tax purposes. A final dividend can create an enforceable debt once shareholders declare it. The exact timing depends on the resolution.
Check Distributable Profits Before Paying
A company can only pay dividends from profits legally available for distribution. Broadly, these profits include accumulated realised profits after deducting accumulated realised losses. Therefore, directors should not rely on the bank balance alone.
For instance, a company might hold plenty of cash after receiving a loan. However, this loan does not create distributable profit. Similarly, earlier trading losses can reduce the profits available for dividends.
Directors should check the figures before every payment and the latest annual accounts usually provide the starting point.
When a Company Pays Too Much
An excessive dividend can become an unlawful distribution. This risk can arise when directors overestimate profits or ignore earlier losses. It can also arise when directors skip proper procedures.
A shareholder may need to repay an unlawful dividend in some circumstances.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.