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HMRC internal manual

International Manual

Arbitrage: legislation and principles - receipts: what is a contribution to the capital of a company?

A contribution to the capital of a company is any payment that directly increases the company’s capital value as represented by its value to its shareholders. The receipt of a loan is not a contribution of capital because the receipt is matched in the accounts by the obligation to repay the loan. Hence the receipts rule applies where a company receives an amount that would otherwise be untaxed, but that nevertheless increases its value and which is given as a tax deduction to the payer.

If the capital value of the company is increased such that in the event of its liquidation, the value of its net assets distributable to its creditors is increased as a result of a payment received, this too is a contribution to the capital of the company.