Clarification on ratchet loan tax
In a ratchet loan the rate of interest is linked to a ratio such as Total Debt/EBITDA. For many years, if a UK company pays interest that is dependent upon the results of the business, the interest has been treated as a “distribution.” That makes it non-deductible for tax purposes. The provisions were designed to prevent mischief such as extracting profits in the form of tax-deductible interest on profit participating loans.
