Reform of red diesel and other rebated fuels entitlement – this could affect you

To help meet its climate change and air quality targets, the Government will withdraw tax relief on red diesel and rebated biodiesel for several sectors and user groups from 1st April 2022.  This change is being introduced in part to help promote the use of green fuels such as hydrotreated vegetable oil (HVO) instead of fossil fuels as part of achieving the target of net zero emissions by 2050. Many AF Member businesses can expect a significant fuel price rise. But not every business will be affected.

Eligibility for continued use of red diesel

If your business/usage is included in the following list of qualifying uses, you can continue to order, receive and use red diesel after the changes come in.

  • Agriculture, forestry, horticulture, and fish farming. This includes agricultural vehicles used for cutting verges and hedges, snow and flooding clearance and gritting roads.
  • Non-commercial heating. This includes the heating of homes and buildings used for other non-commercial purposes.
  • Commercial boat operating industry, including but not limited to the fishing and inland water freight industries and passenger ferries, marine craft refuelling (including fishing and water freight industries).
  • Golf Courses and amateur sports clubs. This includes ground maintenance and the heating and lighting of the clubhouse and changing rooms. Certain criteria apply to qualify.
  • Non-commercial power generation (for example hospitals), including households that rely on red diesel for electricity generation in areas not connected to the electricity grid.
  • Rail As fuel to propel passenger, freight or maintenance vehicles designed to run on rail tracks.

It’s the use of the equipment that counts

It’s worth noting that red diesel permissions apply only to the way in which equipment is used, not to the type of equipment itself. For example, non-road mobile machinery that can be used for both agricultural purposes and construction purposes will still be able to run on red diesel, but only in an agricultural context.

Sectors and applications that don’t fall into the above categories which include construction, manufacturing and transport – will no longer be able to purchase or use red diesel from the start of April.

Why is this happening?

In June 2019, the UK became the first major economy in the world to pass laws guaranteeing an end to its contribution to global warming by 2050. The target will require the UK to bring all greenhouse gas emissions to net zero by 2050, compared with the previous target of at least an 80% reduction from 1990 levels. In 2019 the government also launched an ambitious new strategy to clean up the air and save lives, given air pollution is one of the biggest continuing threats to public health in the UK.

Red diesel is diesel used mainly for off-road purposes, such as to power bulldozers and cranes used in the construction industry, or to power drill for oil extraction. It accounts for around 15% of all the diesel used in the UK and is responsible for the production of nearly 14 million tonnes of carbon dioxide a year. Red diesel used in the construction and infrastructure building sectors was also estimated to have caused 7% of nitrogen oxide emissions and 8% of PM10 emissions (a type of particulate matter) in London in 2018. 

If I am affected, what will this mean for me?

Gas oil users currently only pay 11.14ppl in duty in contrast to the 57.95ppl for derv. This means switching to derv will increase the duty you have to pay by 46.81ppl litre. Depending on how much you buy a year this could substantially increase your fuel bill and impact your available credit limits.

If I am affected – what do I need to do before the 1st April?

As you’ll be aware, the red dye in gas oil is added so that it remains in both pipework and fuel tanks. This could lead to authorities believing that a derv user might have illegally used gas oil previously.

However, HMRC have confirmed that customers who switch from gas oil to derv won’t be required to flush out their tanks, avoiding the high costs associated with flushing.

We advise that you manage your stock of gas oil to run down to as close to zero on 31st March 2022 as is practically possible. As far as we are aware, HMRC will not be conducting physical checks at premises. However, they will look at paper records and ordering patterns to ensure those impacted by these changes managed their stock to achieve a clean switch to derv from 1st April. You should keep hold of any fuel invoices and avoid stock piling.

What is AF doing to help and support you?

We can supply fuel storage tanks should your business need to move from red diesel to either alternative fuels or white diesel.  These can have added telemetry or a key fob facility to support with fuel monitoring.

Tank monitoring has never been more important. This can alert you to any unusual patterns of fuel movement.  Also, ensure your premises are secure to mitigate the risk of fuel theft.

We are working with our suppliers to guide us on the best ways of managing this switchover and will keep you updated.

If you have any queries or concerns then your AF Fuel team is here to help.

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