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04 April 2022

Red Diesel Rule Change – Are you ready?

A red diesel rule change effective from Friday 1st April 2022 will be costly for many businesses. FPM’s COLLEEN FLANAGAN explains what’s behind the red diesel rule change and how you can prepare your business.

What is red diesel?

Red diesel is mainly used for off-road purposes such as to power the construction industry’s bulldozers and cranes or the drills used for extraction by the oil industry.

What are the new rules on red diesel?

Historically, red diesel was taxed at a lower (rebated) rate than white diesel which is used in diesel engine road vehicles. However, from 1 April 2022, only certain sectors will be entitled to use red diesel. Businesses operating outside of these sectors will have to use fuel taxed at the white diesel standard rate.

How will the Red Diesel Rule Change affect my business?

Prior to fuel duty rate changes introduced by the Chancellor in his Spring Statement, red diesel had an effective duty rate of 11.14p per litre (currently reduced to 10.18p per litre)— significantly less than the 57.95p per litre that applied to white diesel (currently reduced to 52.95p per litre). Traders forced to switch to white diesel will have to pay additional duty. This will lead to a significant increase in fuel costs for businesses affected by the change.

Why is the change happening with red diesel?

The policy objective of the red diesel rule change lies in the UK Government’s commitment to bring greenhouse gas emissions to net zero by 2050 and ensure that climate change and air quality targets are met.

What sectors are most affected?

Red diesel currently accounts for around 15% of all diesel used in the UK which means that many businesses will be affected. In the construction sector, red diesel will no longer be available for non-road mobile machinery such as diggers and cranes or to power mobile generators. Other sectors likely to be heavily impacted include mining and quarrying, ports, manufacturing (e.g. ceramics, steel, timber), haulage (for transport refrigeration units on lorries), road maintenance, airport operations, oil, and gas extraction, plant hire, logistics, and waste management.

What practical difficulties might my business face?

Difficulties arise in relation to vehicles and machines which are used for both “allowed” and “non-allowed” purposes after the rules change. If white diesel is not used for all purposes, the tank will have to be flushed out to remove all traces of rebated fuel when switching uses. For example, whilst the agriculture industry can continue to use red diesel for farm work, farm businesses and contractors who have contracts with the construction industry and/or are involved in amenity work such as trimming hedges around car parks or sports field mowing must use white diesel.

Businesses such as hire companies will also have additional obligations in terms of

  1. Understanding what vehicles and machines will be used for and the impact that this use has on the fuel to be used in the vehicle; and
  2. Carrying out post-hire inspections when plant and equipment is returned to note what fuel was used in the vehicle.

Registered fuel suppliers will either need to decommission fuel tanks currently storing red diesel or flush out tanks that will in future store white diesel.

How can I prepare my business for the Red Diesel Rule Change?

Businesses no longer entitled to use red diesel after 1 April 2022 will need to run down the fuel in their vehicles and machines and use up stocks held in storage. Traders with a large volume of rebated diesel in reserve who are concerned that they will not be able to use or dispose of it before 1 April 2022, should contact for advice.

If you use vehicles, machines or appliances for both accepted and non-accepted purposes, you should consider using separate tanks where possible so that you don’t have to drain and flush the tank when you change use.

HMRC has acknowledged that there may be a period between the rule change and rebated fuel in an internal tank or engine being used up. HMRC guidance indicates that they will work with traders in this regard, however, you should be able to show that you have been refilling with the correct fuel since the rules changed. This means keeping invoices or receipts to show that you purchased diesel or biofuels on which full duty has been paid.

To avoid fines and penalties, we advise all operators to carry copies of fuel receipts and operational logs as proof that the fuel being used complies with the new laws.

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Can red diesel continue to be used for any purpose?

Red diesel can continue to be used for the following purposes:

  • for vehicles and machinery used in agriculture, horticulture, fish farming and forestry—this includes agriculture vehicles used for cutting verges and hedges, snow clearance and gritting roads
  • to propel passenger, freight or maintenance vehicles designed to run on rail tracks
  • for heating and electricity generation in non-commercial premises—this includes the heating of homes and buildings such as places of worship, hospitals and town halls; off-grid power generation; and non-propulsion uses on permanently moored houseboats
  • for maintaining community amateur sports clubs as well as golf courses;
    as fuel for all marine craft re-fuelling and operating in the UK (including fishing industries), except for propelling private pleasure craft in Northern Ireland
  • for powering the machinery of travelling fairs and circuses.

Key questions to check readiness for the new rules

  1. Are we aware of all plant and equipment that we own/ hire/ lease in which we currently use red diesel?
  2. Have we identified which items of plant and equipment can continue to use red diesel and which cannot use red diesel going forward?
  3. Have we determined a schedule for flushing out tanks and considered the cost of running down or removing red diesel from vehicles?
  4. Have we factored the changes into our purchasing practices and communicated them to our diesel supplier?
  5. Have we considered selling back any excess red diesel stock to fuel suppliers?
  6. Have we considered the impact of increased diesel prices on our costs and considered whether there will be any knock-on pricing implications for our clients? Any such price implications should be communicated in advance with the customer.

Here to Help

Taking prompt action now will help you manage the impact of the red diesel rule change on your business.

The Team at FPM are always on hand with further information.

Contact us today.

Red Diesel Rule Change 2022 - Colleen Flanagan InsightsRed Diesel Rule Change 2022 - Business Impact

Contact Colleen

Colleen Flanagan / Tax Manager

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