What is the difference between ‘interim’ and ‘final’ dividends?

As a limited company owner, you may have encountered the terms ‘interim’ and ‘final’ dividends. But what do these actually mean in practice?

A dividend is a payment distributed by a company to its shareholders from its profits after all liabilities and expenses have been deducted.

It is up to the directors to decide when to pay dividends, and they carry certain responsibilities.

The directors must record the decision in board meeting minutes and ensure that sufficient distributable profits are available.

In practice, directors should also ensure there are sufficient cash reserves to cover any future liabilities.

There are two types of dividends. Final and interim.

Final dividends are declared at the end of the company’s financial year, based on final accounts. Interim dividends are paid during the year, based on management accounts.

In this guide, we look at the differences.

---

---

What are final dividends?

At the end of the financial year, once the final accounts have been produced, the board of directors can recommend paying a final dividend.

The recommendation is usually made at a board meeting and then approved by the shareholders.

Once approved by shareholders, a final dividend generally creates a debt owed by the company to the shareholders and must be paid in accordance with the resolution.

Directors cannot unilaterally revoke it.

What are interim dividends?

Interim dividends are paid before the annual accounts are finalised. They can be paid at any time during the year, often quarterly or on an as-needed basis, provided sufficient distributable profits are available.

They are authorised by the board of directors.

In many companies (for example, those with the Model Articles), directors can declare interim dividends without shareholder approval. However, this depends on the company’s own articles of association, so always check them first.

Because interim dividends rely on management accounts rather than finalised annual accounts, directors must take extra care.

If there are insufficient retained profits in the company accounts to cover the dividend, the dividend may be unlawful and may have to be repaid. See our guide on illegal dividends for more guidelines.

Interim dividends do not normally create a binding debt until they are paid, meaning they can usually be varied or cancelled before payment.

Interim dividends may not be suitable for newer or growing companies that need to reinvest profits. For established companies with stable cash flow, they are a way for shareholders to receive returns during the year instead of waiting until year end.

Interim vs final dividends – key differences

Timing

• Interim: Declared and paid during the financial year, before annual accounts are complete.
• Final: Declared after the financial year end, based on approved accounts.

Approval

• Interim: Usually authorised by directors, but check the company’s articles.
• Final: Recommended by directors and approved by shareholders.

Cancellation

• Interim: Can sometimes be revoked before payment is made. Once paid, they can be recovered only if they were unlawful.
• Final: Once declared by shareholders, the debt becomes a liability that the company must pay. They cannot be cancelled by directors.

Legal framework

• The company’s articles of association normally grant directors the power to declare interim dividends. Final dividends, on the other hand, are declared by shareholders following a board recommendation.

Further reading on dividends

Many thanks to Christian Hickmott, Managing Director of Integro Accounting, for providing this advice.

For more background reading, see:

• What are dividends, and how are they taxed?
• Can you declare dividends if your company is making a loss in the current year?
• Make sure you avoid declaring unlawful (illegal) dividends
• How does the dividend allowance work in practice?