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A company can pay dividends to shareholders from its accumulated after-tax profits. These can be seen in the balance sheet of the accounts.

Dividends can only legally be declared if the company has the profits available to pay them. Unlawful dividends are treated as a loan for tax purposes, which can create a high tax bill for the company.

Interim dividends can be declared by the directors during the year. There is no need to declare a final dividend, which needs to be approved by shareholders at an AGM.

There are two main steps which should be followed to declare an interim dividend:

  1. Minutes of a directors’ meeting need to be declared and signed by the directors, even if there is just one director. The minutes record the time and place of the meeting and who is present, and include a note that it was resolved to pay a given dividend on or after the date of the meeting.
  2. A dividend voucher should be prepared stating the shareholder’s name, the number of shares held, the dividend payable per share, the date the dividend is payable, and that it is an interim dividend.

An interim dividend is treated as paid when an enforceable debt is created. This will be the earlier of when the funds are transferred to the director, or when they are made available by an accounting entry crediting the director’s loan account.