As part of the government’s climate change ambitions, legislative changes are being implemented that will restrict the entitlement to use red diesel and rebated biofuels from 1 April 2022.
Red diesel is used mainly for off-road purposes, such as to power bulldozers or cranes used in the construction industry or power drills for oil extraction. Red diesel accounts for around 15% of all diesel used in the UK and the production of nearly 14 million tonnes of carbon dioxide a year.
The government announced that it would remove the entitlement to use red diesel and rebated biofuel from most sectors from April 2022 to help meet its climate change and air quality targets. However while affected businesses will need to pay the full duty rate for using white diesel, the measure is expected to incentivise rebated fuel users to seek to use greener alternatives or less fuel.
Who will be affected?
The measures will affect businesses and individuals currently entitled to supply or use red diesel and rebated biofuels.
The use of red diesel will be restricted to the following qualifying purpose only:
- For vehicles and machinery in agricultural, horticulture, fish farming and forestry. This includes allowing vehicles used for agriculture to be 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 This includes the heating of homes and buildings such as places of worship, hospitals and townhalls; off-grid power generation; and non-propulsion uses on permanently moored houseboats.
- For maintaining community amateur sports clubs as well as golf courses (including activities such as ground maintenance, and the heating and lighting of clubhouses, changing rooms etc).
- As fuel for all marine craft refuelling and operating in the UK (including fishing and water freight industries), except for propelling private pleasure craft in Northern Ireland.
- For powering the machinery (including caravans) of fairs and circuses.
Sectors included in the above list of qualifying uses can continue to order, receive, and use red diesel after the changes come in. Sectors that do not fall into the above categories, which include construction and manufacturing, will no longer be able to purchase or use red diesel from 1 April 2022.
Fines and criminal sanctions can apply to those found to be intentionally or recklessly breaching the rules. The legislation will also enable HMRC to carry out spot checks and to seize vehicles or machinery in certain circumstances.
Preparing for the change
Businesses will need to make logistical considerations prior to the implementation of the changes. Government advice is that users of vehicles and machinery losing their red diesel entitlement must ensure they run down their existing stocks before 1 April 2022. In addition, there will be no grace period to use up ‘old stocks’ after this date.
In preparation for the change in the law, registered fuel suppliers who switch a fuel tank from red to white diesel will need to flush out the tank and supply lines until no trace of marked rebated fuel remains. For users of red diesel, traces are likely to remain in tanks and therefore businesses may want to keep evidence that red diesel was put in before the rules changes and that it has been refilled with white diesel since 1 April 2022.
The change will also mean a significant cost increase for affected businesses. Marked gas oil currently attracts a fuel duty rate of 11.14 pence per litre. Businesses will need to switch to regular white diesel which has a duty rate of 57.95 pence per litre or find alternative fuels such as Hydrotreated Vegetable Oil (HVO). Business may want to consider whether this increased cost can be passed elsewhere, for example to customers or contractors.
It is important that users of red diesel fully understand the implications of these measures on their business and operations; early planning will be crucial to ensure compliance with the legislation.