Interim accounts are needed when a company wants to make a distribution that its last annual accounts circulated to members cannot support, usually because the profits that would cover it were earned after the year end or earlier dividends have used up the headroom. Section 838 of the Companies Act 2006 requires them to enable a reasonable judgment to be made of profits, losses, assets, liabilities, provisions, share capital and reserves. A public company must also have them properly prepared, signed and delivered to Companies House before the distribution is made.

What are the relevant accounts for a distribution?

Section 836 says that whether a distribution can be made without breaching Part 23 is decided by reference to items “as stated in the relevant accounts”: profits, losses, assets and liabilities, provisions, and share capital and reserves, including undistributable reserves. Section 836(2) makes the company’s last annual accounts the default. There are two exceptions:

  • Interim accounts may be used where the distribution would be found to breach Part 23 by reference to the last annual accounts.
  • Initial accounts may be used where the distribution is proposed during the company’s first accounting reference period, or before any accounts have been circulated for that period.

Section 837(1) defines the last annual accounts as the individual accounts last circulated to members under section 423. Accounts the board has approved but not yet sent to members are not yet the relevant accounts, so until they go out the previous set still governs. The relevant accounts are always the company’s own individual accounts. The ICAEW and ICAS guidance, TECH 02/17BL, confirms at paragraph 2.12 that group accounts are not relevant because distributions are made by individual companies, not groups.

Section 836(4) is unforgiving: if any applicable requirement of sections 837 to 839 is not met, the accounts cannot be relied on and the distribution is treated as breaching Part 23. How the reserves figure itself is built up is covered in distributable reserves under Part 23.

When does a company actually need interim accounts?

The common triggers are:

  • Profits earned since the year end. The annual accounts show too little, but trading since then has generated enough realised profit to cover the payment.
  • Earlier distributions against the same accounts. Section 840 requires any previous distributions made by reference to the same relevant accounts, together with certain financial assistance and payments for the purchase of the company’s own shares, to be added to the proposed distribution. A second or third interim dividend can exhaust what the annual accounts support.
  • A deficit that has since been cleared. A company whose last accounts showed accumulated losses cannot pay anything by reference to them, even if it is now profitable.
  • An event after the balance sheet date. TECH 02/17BL paragraph 2.14 explains that only items in the accounts count, not valuations or contingencies mentioned in the notes. If the accounts show an unrealised profit and a note says it has since become realised, interim accounts must still be prepared before that profit can be distributed.

ICAEW’s introduction to the law on dividends points out that for a private company the gap between the date of the last annual accounts and a dividend could be up to 21 months. Under the common law a company cannot make a distribution out of capital, and TECH 02/17BL paragraph 2.2 says directors must consider whether losses since the balance sheet date have eroded the profits shown. Up to date figures are often the only sensible way to show that check was done.

What must interim accounts of a private company show?

For a private company the only statutory test is the one in section 838(1): the accounts must enable a reasonable judgment to be made as to the amounts of the items listed in section 836(1). TECH 02/17BL paragraph 2.24 confirms that the form and content rules for public companies do not apply, and the accounts do not need to be filed at Companies House. It adds that reliable management accounts dealing with these items will often be enough, but that management accounts sometimes leave things out, such as tax, and must then be adjusted.

In practice a reasonable judgment usually needs:

  • a profit and loss figure to the interim date on a proper accruals basis, including depreciation, stock adjustments, accrued costs and bonuses;
  • provisions and impairments, because section 841(2) treats provisions (other than revaluation provisions) as realised losses;
  • a charge for corporation tax on the profit to date, since TECH 02/17BL paragraph 3.16 treats a current tax charge as a realised loss even where it arises on an unrealised profit;
  • a balance sheet showing share capital, share premium and each reserve, with dividends already paid since the year end deducted;
  • enough analysis to separate realised from unrealised profits, such as fair value gains on unquoted investments, which TECH 02/17BL paragraph 2.16 says companies should keep records to support.

Interim accounts do not need to be audited (TECH 02/17BL paragraph 2.23). They should be approved by the board and kept with the minutes recording the dividend decision, because they are the evidence that the payment was justified.

What extra rules apply to a public company?

Section 838(2) to (6) adds four requirements for a public company’s interim accounts:

  1. They must be properly prepared, or prepared subject only to points not material to whether the distribution breaches Part 23. “Properly prepared” means in accordance with sections 395 to 397, modified as needed because the accounts are not for a full accounting reference period.
  2. The balance sheet must be signed in accordance with section 414.
  3. A copy must have been delivered to the registrar, with a certified translation where Part 35 requires one.
  4. Delivery must happen before the distribution is made. TECH 02/17BL paragraph 2.20 ties this to the date of the distribution.

TECH 02/17BL paragraph 2.22 explains that in practice the accounts will consist of a balance sheet and profit and loss account, with notes limited to what is relevant to the distribution and no comparatives. A public company’s initial accounts go further: section 839 requires an auditor’s report on whether they have been properly prepared, a written statement from the auditor if the report is qualified, and delivery of the accounts, report and any statement to the registrar. A public company must also pass the net asset test in section 831. TECH 02/17BL paragraph 2.23A states that if any of these requirements is not satisfied, the distribution is unlawful.

These are not the same as a half yearly report under FRS 104, covered in FRS 104 interim reporting.

How does timing affect the accounts you rely on?

TECH 02/17BL paragraph 2.10 says a distribution is made when it becomes a legally binding liability. A final dividend is made when the members declare it. An interim dividend that directors decide to pay under articles like the model articles normally creates no binding liability until it is paid. The differences between the two are set out in interim and final dividends.

This produces three practical rules. First, the accounts must exist and, for a public company, be filed before the distribution date. Second, the common law test runs up to the date the distribution is made, so losses between the interim accounts date and the payment date still need to be considered. Third, once a set of interim accounts has been used, section 840 applies to it too: a later dividend justified by the same interim accounts must be added to the earlier one.

How might this work in practice?

Illustration only. A private company has a 31 March year end. Its accounts to 31 March 2026 were circulated to members in June 2026 and show realised profits available for distribution of £30,000. In July 2026 the directors paid an interim dividend of £25,000 by reference to those accounts.

In November the directors want to pay £40,000. Section 840 adds the £25,000 already paid to the proposed £40,000, giving £65,000 to test against £30,000, so the annual accounts cannot support it. They prepare interim accounts to 31 October 2026:

Item Amount
Realised profits at 31 March 2026 £30,000
Profit to 31 October per management accounts £60,000
Less accrued bonus not yet posted (£5,000)
Less stock write down (£3,000)
Less estimated corporation tax on the period (£13,000)
Less July interim dividend paid (£25,000)
Realised profits at 31 October 2026 £44,000

The £40,000 dividend is covered with £4,000 to spare. The directors minute the decision and check that nothing since 31 October has eroded the figure. If they later want to pay a further £10,000 from the same interim accounts, section 840 adds the £40,000 to it and the test fails.

What mistakes come up most often?

  • Treating approved but uncirculated annual accounts as the relevant accounts.
  • Using raw management accounts with no tax charge, accruals or impairment review.
  • Relying on a group management pack when the paying company is a holding company whose own reserves depend on dividends actually received from subsidiaries.
  • A public company paying before its interim accounts have been delivered to Companies House.
  • Counting a valuation that appears only in a note to the accounts.
  • Forgetting that section 840 applies to every set of relevant accounts, including interim ones.

Where these points are missed, the consequences for directors and shareholders are explained in director liability for unlawful dividends, and the general procedure for paying is in 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.