Peter Rayney reviews the legal status and tax treatment of capital contributions received by trading companies.
Tax professionals often come across capital contributions where an overseas company wishes to inject money into its UK subsidiary or UK affiliate by way of a gift. Typically, they are a method of contributing capital into a company without taking an issue of shares or creating a liability.
Legal status of capital contributions
Capital contributions are not specifically legislated for under UK company law, although their status was considered in Kellar v Williams  2 BCLC 390. The court found that:
‘If the shareholders of a company agree to increase its capital without a formal allocation of shares that capital will become like the share premium part of the owner’s equity and there is nothing