A parent can accrue a dividend receivable from a subsidiary at its year end only if, by that date, the subsidiary was legally bound to pay it. A final dividend declared by the subsidiary’s members before the year end qualifies even if the cash arrives later; an interim dividend approved by the subsidiary’s board but unpaid at the year end does not, and nor does any dividend declared after the year end, however soon afterwards.
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What test decides whether the parent can accrue?
For investments in ordinary shares, FRS 102 paragraph 11.14A recognises dividend income only when the right to receive payment is established, it is probable the benefit will flow to the holder and the amount can be measured reliably. Investments in subsidiaries are measured under Section 9, which has no dividend rule of its own, so parents apply the same principle; the reasoning is set out in recording dividends received. This page deals only with the timing question at the year end.
The ICAEW and ICAS guidance on distributable profits, TECH 02/17BL, links the accounting to company law. Paragraph 9.7 says a dividend will be accrued as receivable by a parent only when the subsidiary has a legally binding obligation to make the distribution. Paragraph 2.10 explains when that happens: a distribution is made when it becomes a legally binding liability of the company, regardless of when it is settled. Paragraph 9.7 also warns that a dividend may have been declared by the directors in the everyday sense of the word without meeting the test for recognition.
What if the subsidiary declared a final dividend before the year end?
Accrue it. Under paragraph 2.10 of TECH 02/17BL a final dividend becomes binding when it is declared by the company in general meeting or, for a private company, when the members pass a written resolution. Section 296(4) of the Companies Act 2006 says a written resolution is passed when the required majority of eligible members have signified agreement, so the parent should check that its signed agreement reached the subsidiary before the year end, not merely that the resolution was circulated.
A later payment date does not change this. HMRC’s Savings and Investment Manual at SAIM5040 explains that where a final dividend is declared with a stated payment date, it becomes due and payable when that date arrives, and where no date is set an immediately enforceable debt arises on declaration. Either way the obligation exists at the year end; the payment date affects only when cash is received and, under section 1168 of the Corporation Tax Act 2010, when the dividend is treated as paid for corporation tax purposes.
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What if the subsidiary’s board approved an interim dividend that was paid after the year end?
Do not accrue it. The model articles for private companies, paragraph 30(1), let members declare dividends by ordinary resolution and let directors decide to pay interim dividends. Paragraph 2.10 of TECH 02/17BL says that for an interim dividend normally no legally binding liability arises before payment, and SAIM5040 adds that an interim dividend can be varied or rescinded at any time before payment. A board minute dated before the year end therefore gives the parent no enforceable right at that date. The parent recognises the income in the period the cash or equivalent settlement is received.
What if the dividend was declared after the year end but before the accounts were signed?
It is not accrued by either company. Paragraph 32.8 of FRS 102 says a dividend declared after the end of the reporting period is not recognised as a liability by the payer because no obligation exists at that date. For the parent, paragraph 32.2 separates adjusting events, which give evidence of conditions at the reporting date, from non adjusting events, which reflect conditions arising afterwards. A right that did not exist at the year end is in the second category. If the amount is material, paragraph 32.10 requires disclosure of the nature of the event and an estimate of its financial effect. The auditor’s approach to this period is described in subsequent events and the auditor.
How can a group make an interim dividend count before the year end?
Paragraph 9.8 of TECH 02/17BL notes that groups may need to pay up interim dividends, or establish a binding liability, before the balance sheet date so the parent has enough distributable reserves for its own proposed final dividend. The guidance recognises several ways of doing so:
- a transfer of cash, which is clearly payment (paragraph 9.12);
- a book entry reducing an amount the parent already owes the subsidiary, treated as settlement by set off at the date both companies make the entries, but only so far as it does not take that balance below nil (paragraph 9.13);
- an instruction to a group treasury function to debit the subsidiary and credit the parent (paragraph 9.15);
- where the subsidiary can clearly pay, a deed acknowledging the liability (paragraph 9.16);
- converting the interim into a final dividend declared by the members before the year end (paragraph 9.17).
A book entry that simply creates or increases an intercompany payable is a different case: paragraph 9.14 treats it as an open question, and paragraph 9.16 says more than accounting entries are likely to be needed. The steps must be completed and dated before the year end, with the minutes and resolutions kept as described in dividend vouchers and minutes.
Does the subsidiary’s own year end change anything?
The question is always the legal position at the parent’s reporting date. If the subsidiary’s year end is earlier or later, what counts is whether its members declared the dividend, or it was paid, by the parent’s year end. The subsidiary must still be able to justify the payment under section 836 of the Companies Act 2006, by reference to its last annual accounts or, where those do not show enough profits, interim accounts. Group reporting issues with mismatched dates are covered in subsidiary with a different year end.
How does this look in practice?
Illustration only. Holdco has a 31 December 2026 year end and owns 100% of Opco.
| What happened at Opco | Holdco at 31 December 2026 |
|---|---|
| Board approves a £200,000 interim dividend on 15 December; paid 10 January 2027 | No receivable; income in 2027 |
| Members pass a written resolution declaring a £150,000 final dividend on 20 December, payable 31 March 2027 | Receivable and income of £150,000 in 2026 |
| Board approves a £100,000 interim on 18 December and reduces Holdco’s existing £300,000 intercompany debt to Opco by that amount the same day | Paid by set off; income of £100,000 in 2026 |
| Members declare a £250,000 final dividend on 15 February 2027, before the accounts are signed | No receivable; disclose as a non adjusting event if material |
Holdco can count £250,000 of the Opco dividends towards its own 2026 profits. Once income is recognised, Holdco should also consider whether the dividend has reduced the value of its investment in Opco, as explained for pre acquisition dividends.
What mistakes come up most often?
- Accruing an interim dividend because the subsidiary’s board minute is dated before the year end.
- Treating a dividend declared in the weeks after the year end as an adjusting event because the subsidiary’s profits were earned in the year.
- Relying on a written resolution that had not reached the required majority by the year end.
- Posting an intercompany journal that increases the subsidiary’s payable, and assuming that alone makes the dividend paid.
- The parent paying its own final dividend on the strength of subsidiary dividends that were never legally established, a problem explored in paying dividends up a group structure.
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Related Accountapedia entries
- Can a subsidiary own shares in its parent
- Subsidiary audit exemption with a parent guarantee
- Accruing staff bonuses at the year end
- Capital contributions from a parent company
- Dividend cover
Sources
- Financial Reporting Council: FRS 102 September 2024 tmKYWO6
- ICAEW: Tech 02 17 guidance on realised and distributable profits under the co
- legislation.gov.uk: Act 2006 c. 46, section 296
- GOV.UK: Manual page SAIM5040
- legislation.gov.uk: Act 2010 c. 4, section 1168
- legislation.gov.uk: SI 2008/3229, schedule 1
- legislation.gov.uk: Act 2006 c. 46, section 836
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.