Interim and final dividends

Under the model articles, a final dividend is recommended by the directors and declared by the shareholders by ordinary resolution, while an interim dividend is decided on by the directors alone. A properly declared final dividend becomes a debt owed to shareholders on declaration, or on any later payment date the resolution sets. An interim dividend can be changed or cancelled until it is actually paid, so it only becomes a liability, and is only treated as paid for tax, when the money reaches the shareholder.

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Who declares a final dividend?

The Companies Act 2006 does not say who declares dividends; that is left to the articles. HMRC’s Company Taxation Manual at CTM15205 notes that if the articles are silent, dividends are payable only when declared by ordinary resolution of the shareholders. Most private companies use, or are based on, the model articles in Schedule 1 to the Companies (Model Articles) Regulations 2008. Article 30 provides that:

the company may by ordinary resolution declare dividends (article 30(1));
a dividend must not be declared unless the directors have recommended an amount, and it must not exceed that amount (article 30(2)), so shareholders can vote for less than the board proposes but never more;
no dividend may be declared or paid except in accordance with shareholders’ respective rights (article 30(3)).

“Final” dividends are usually paid once a year after the annual accounts have been approved. A private company can declare one at a general meeting or, as ICAEW and ICAS note in TECH 02/17BL, by the members passing a written resolution. The directors’ recommendation should itself be minuted, along with the accounts relied on to support it.

Who decides an interim dividend?

Article 30(1) of the model articles also says the directors may decide to pay interim dividends. No shareholder vote is needed, and CTM15205 notes, citing Potel v CIR (1970), that the general meeting cannot interfere with the directors’ exercise of that power. Before deciding, the directors must satisfy themselves that there are profits available for distribution, assessed against the relevant accounts described in distributable reserves under Part 23.

Two further rules in article 30 apply where there are different share classes. Article 30(5) prevents an interim dividend on deferred or non preferred shares while any preferential dividend is in arrears. Article 30(6) allows the directors to pay a fixed rate dividend at intervals if the available profits justify it.

Many owner managed companies pay most of their dividends as interims through the year, often quarterly or monthly, and never declare a final dividend at all. That is lawful under the model articles, but each interim needs its own board decision and its own check of available profits.

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When does each type become a debt?

The distinction comes from case law, mainly Potel v CIR, and is summarised by HMRC at CTM15205 and SAIM5040:

Final dividend with no payment date. A properly declared final dividend that does not specify a payment date creates an immediately enforceable debt on the date of declaration.
Final dividend with a later payment date. The declaration creates a debt, but it is only enforceable, and the dividend is only due and payable, when the stated payment date arrives.
Interim dividend. A board resolution to pay an interim can be varied or rescinded at a later board meeting at any time before payment. It is therefore only due and payable when it is actually paid.

TECH 02/17BL paragraph 2.10 reaches the same view for company law: a distribution is made when it becomes a legally binding liability, which for a final dividend is on declaration and for an interim dividend is normally only on payment. HMRC treats a dividend as paid when the shareholder receives money or the amount is unreservedly placed at their disposal, for example by crediting a loan account they are free to draw on. See the director’s loan account for how such credits are recorded.

Why does the difference affect the lawfulness check?

ICAEW’s guidance for directors says the tests of lawfulness have to be applied not only when the dividend is proposed but up to the point at which it becomes a legally binding liability. For a final dividend that is the date of declaration; for an interim it is the date of payment. If the company has made losses between the board meeting and the payment of an interim, the directors must look again before the money goes out.

Timing also affects later dividends. Under section 840 of the Companies Act 2006, distributions already made by reference to the same accounts are added to any proposed dividend before testing it. TECH 02/17BL notes that groups sometimes need to pay, or create a binding liability for, interim dividends from subsidiaries before the year end so that the parent has enough distributable profits to support its own final dividend.

How does timing affect tax?

Section 1168 of the Corporation Tax Act 2010 treats dividends as paid, for corporation tax purposes, on the date they become due and payable. HMRC’s Savings and Investment Manual at SAIM5040 applies the same analysis to shareholders: a final dividend is taxed by reference to the due and payable date fixed by the resolution, and an interim by reference to the date it is actually paid. The shareholder’s rates and the dividend allowance are covered in dividend allowance and tax rates.

The company must also send each shareholder, or the bank receiving the payment, a tax certificate showing the amount and date of payment within a reasonable period, under section 1104 of the Corporation Tax Act 2010.

How are they shown in the accounts?

TECH 02/17BL explains that under FRS 102 and IFRIC 17 a dividend payable is recognised only when it is appropriately authorised and no longer at the company’s discretion. In practice:

an interim dividend that the board has resolved to pay but has not paid by the year end is not a liability in those accounts;
a final dividend declared by shareholders after the year end is disclosed, not accrued, and is recognised in the following year;
a final dividend declared before the year end but payable later is a liability at the year end.

What happens if the company fails before the dividend is paid?

An interim dividend that has not been paid never became a debt, so the shareholder has no claim. A declared but unpaid final dividend is a debt, but section 74(2)(f) of the Insolvency Act 1986 provides that sums due to a member in their character as a member, including dividends, are not treated as debts in competition with outside creditors. TECH 02/17BL describes this as subordination in a liquidation. Separately, article 33 of the model articles says a dividend unclaimed for twelve years after it became due ceases to be owed.

How might this work in practice?

Illustration only. A company’s directors meet on 25 March and resolve to pay an interim dividend of £8,000 to the sole shareholder. The transfer is made on 8 April. Because an interim is only paid when the money moves, the dividend falls into the tax year starting on 6 April, not the one ending on 5 April. If the shareholder wanted it in the earlier year, the transfer, or an unconditional credit to a loan account they can draw on, had to happen by 5 April.

Now suppose instead the shareholder passes a written resolution on 25 March declaring a final dividend of £8,000 with no payment date. The debt arises on 25 March and the dividend is treated as paid on that date, even if the cash follows later. Had the resolution said “payable on 30 April”, the dividend would be due and payable, and taxed, on 30 April.

What mistakes are common?

Shareholders voting a final dividend higher than the directors recommended, which article 30(2) does not allow.
Describing a dividend as “declared” in March when it was an interim not paid until April, and reporting it in the wrong tax year.
Paying interims with no board minute or no check of available profits.
Backdating minutes to move a dividend into an earlier year. ICAEW warns that documents should not be backdated as this may amount to fraud.
Paying a dividend to someone other than the holder on the record date set by article 30(4), or out of line with class rights. A shareholder who does not want a dividend should use a formal dividend waiver before it becomes a debt.

For the full approval and paperwork sequence see how to pay dividends legally.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.