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Definition
The interest tax shield is the value of tax relief on deductible interest. Because interest reduces taxable profit, borrowing carries a hidden benefit worth the interest times your tax rate. It is why the net-of-tax cost of debt is lower than the rate you pay.
In plain terms
The taxman effectively subsidises part of your interest, so debt costs your company less than the sticker rate.
Why it matters for your company
Factor the tax shield in when weighing debt against equity or reserves. See net-of-tax cost and WACC.
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Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.