Director(s) of the company need to consider the following factors before authorising payment of interim dividends to the shareholders:
- That at the date of payment of an interim dividend, there are sufficient distributable profits available to the company, as required by UK Companies Act 2006, c. 46 Part 23. For the avoidance of doubt, distributable profits are not always equal to the cash available in the company’s business account or the year-end profit after tax of the preceding financial year. Further information in respect of distributable profits and dividends can be found in HMRC’s Company Tax Manual on this link.
- If there are not sufficient distributable profits in the company at the time an interim dividend is paid then the interim dividend will be unlawful and any shareholder receiving such interim dividend might be liable to repay it. Further information in respect of unlawful dividends can be found in HMRC’s Company Tax Manual on this link.
- A director who authorises the payment of an unlawful dividend such as an interim dividend in excess of a company's distributable profits, may be in breach of their statutory and common law duties and may be personally liable to repay the dividend to the company.
- The company will need to pay interim dividends to all the shareholders at the same time, according to a shareholder’s percentage ownership in the company. Please see this link for further details on this point.