Borrowing is usually a cheap way to finance a business because interest is tax deductible, but the rules restrict that deduction when debt replaces the owner's equity in ways that look purely motivated by tax. Thin capitalisation limits disallow interest on related-party loans beyond a fixed ratio of the borrower's equity. The mechanism is a ceiling, commonly a ratio of debt to equity. Where the borrowing exceeds the permitted limit, the excess interest loses its deductibility, so the company is taxed on a larger profit than its real financing suggests. Because the test is geometric, a business that keeps capitalising through shareholder loans can quietly lose deductions across a whole era. Recognising the trigger is easier than correcting it. The ratio is reviewed relative to equity, so converting part of a high shareholder loan into share capital restores balance. Mixed groups should watch inter-company borrowing as closely as trading debt. Documentation of every loan agreement, interest rate and payment intention helps, but the real protection is structuring capital at the moment of investment rather than renegotiating it after the department's examination arrives.