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In 2019, the UK set a target to reach net-zero greenhouse gas emissions by 2050. This was a significant uplift compared with the previous target of an 80% reduction from 1990 levels. In light of this, the government has launched various measures to ‘clean up our air and save lives’.
One such strategy is removing the entitlement to use red diesel and rebated biodiesel from most sectors from April 2022. This ensures that most users of red diesel must use fuel taxed at the standard rate, on the basis that this more fairly reflects the harmful impact of the emissions they produce, as well as incentivising users to improve the energy efficiency of their machinery, invest in ‘greener’ alternatives, and use less fuel.
Red diesel is simply ordinary diesel with a dye in it which allows HMRC to determine whether fuel is being used illegally, and also provides a deterrent to fuel fraud.
Currently, ‘red’ diesel is taxed at a lower rate, historically because fuel duty was intended to be a tax on road vehicles. White diesel is subject to a duty rate of 57.95ppl. Red diesel is entitled to a rebate of 46.81ppl, giving an effective duty rate of 11.14ppl. The Finance Act 2020 made changes to the Hydrocarbon Oil Duties Act 1979 (HODA), removing the entitlement to use red diesel from most sectors, excepting agriculture, rail, and non-commercial heating from 1 April 2022.
The government has published guidelines which specify who is entitled to use red diesel and for which purposes. Industries that will no longer be able to use red diesel include:
One of the biggest changes for manufacturing and construction users is that heavy plant and other equipment will no longer be able to run on red diesel when used for construction purposes, including all non-road mobile machinery such as excavators, dumpers, and cranes.
Permission has also been revoked for the use of red diesel for non-commercial heating and power generation, such as mobile generators on sites. Red diesel is also banned for use in propelling private pleasure craft in Northern Ireland only, in order to ensure that the UK meets its international obligations under the terms of the Northern Ireland Protocol to the Withdrawal Agreement.
There has been some ambiguity around applications and usage – for example, it’s worth noting that red diesel permissions apply only to the way in which equipment is used rather than the category of the equipment itself. This means that machinery that can be used for both agricultural purposes and construction purposes will still be able to run red diesel, but only in an agricultural context. As a result, users must carefully consider their eligibility in order to ensure compliance.
After 1 April 2022 red diesel may not be put into vehicles or appliances which are no longer entitled to use it. Any fuel already in the tank can continue to be used up if it was legally put into the vehicle before this date – for this reason, it is imperative to keep any receipts for fuel put in before this date in case of spot-checks.
Red diesel which remains in storage tanks after 1 April 2022 must be disposed of or transferred for use in an allowable manner. There is no requirement to flush out storage tanks, but records should be kept of how and when the fuel was disposed of or transferred.
Traces of red diesel are likely to remain in tanks for some time after the changes, so again, it is essential to maintain receipts and records of fuel being legally put into the vehicle before the change, as well as evidence that the vehicle has been refilled with white diesel since.
As mentioned above, difficulties arise in relation to plant equipment, which is used for both allowable and non-allowable purposes after the new rules come into force. If white diesel is not used for all purposes, the tank will need to be flushed out to remove all rebated fuel when switching uses. It is advisable to take extra care with hired equipment.
Users should check how much rebated fuel they currently use, determine how much they will likely need until 31 March, and plan how to manage surplus. Only order the amount of rebated fuel that will be required up until 31 March 2022.
If you would like to seek further information about any of the issues raised in this article, please contact our Manufacturing team at Cleaver Fulton Rankin.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.
Article researched and written by Trainee Solicitor, Aoife McTaggart.