Super Deduction tax break and warehouse management system investment

Using Rishi Sunak’s ‘super-deduction’ to invest in a new WMS

A new Warehouse Management System (WMS) could be much closer than you think, thanks to Rishi Sunak’s super-deduction capital allowances UK tax break scheme.

A new Warehouse Management System (WMS) could be much closer than you think, thanks to Rishi Sunak’s “super-deduction” capital allowances UK tax break scheme. This is an opportunity to benefit from 130% tax relief on every pound spent on qualifying new plant and machinery for your company. Under the super-deduction, for every pound a company invests, their taxes are cut by up to 25p.


Importantly new software to improve warehouse operations qualifies for the super-deduction capital allowance in the same way that materials handling equipment or factory automation would. In monetary terms, for example if you spent £100,000 on a WMS solution, you would be able to offset £130,000 from corporation tax. It is open to every incorporated business in the UK for certain types of capital investment and the tax breaks begin on 1 April 2021.


There are some exclusions. Sole traders, partnerships and other businesses not paying corporation tax are not eligible. Equipment that will be offered for rent is not covered by the main benefit, and neither are structures or buildings. Equipment that property landlords install in a building that they are leasing out, such as air-conditioning, are also excluded. WMS software investments are definitely included in the list of eligible purchases.


The opportunity to get 130% tax relief on capital allowances will finish on 31 March 2023, so businesses looking to make investments should do so sooner rather than later to make sure that they can take full advantage of it. Remember that corporation tax will be increasing in 2023, so grab the chance to up-level your warehouse for less while it is available. It will make what is already a sound business investment and one that often delivers a Return on Investment (ROI) in under one year even more attractive, with the potential to see a cash positive return after just 9 months.


Worked example


Acme Spares is an automotive parts manufacturer and currently operating a paper based warehouse management system using Excel spreadsheets. It automates its warehouse with a WMS for a capital expenditure of £100,000. As the company has spent £100,000 on qualifying expenditure it can deduct £130,000 (130% of the initial investment) in computing its taxable profits. The company will save £24,700 on its corporation tax bill (being £130,000 at 19%).


To learn more about how a WMS will benefit your business contact Indigo Software.


Disclaimer: This blog relates to the super-deduction as announced in the UK budget in March 2021 and does not constitute tax advice. Tax law is complex so speak to your accountant about the relevance and appropriateness of the super-deduction for your business.

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