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Red Diesel Budget 2020: Changes in Eligibility

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At Budget 2020, Chancellor Rishi Sunak announced a change in red diesel eligibility from the 1st April 2022, which will mean that many sectors will lose permission to use red diesel to power off-road vehicles and equipment. This will pose a huge challenge for many businesses; however, this legislation change is just one of the steps needed to help improve air quality and assist the UK in achieving its net zero 2050 carbon target.

red diesel budget 2020

Red Diesel Eligibility Changes from April 2022

At Budget 2020, the government announced that from the 1st April 2022, it will remove the entitlement for most sectors to use red diesel, with the exception of agriculture, horticulture, fish farming, forestry, rail and non-commercial heating system users.

This means that any business operating outside of these sectors must use fuel that is taxed at the standard rate for white diesel. The change in legislation is needed to encourage red diesel users to ditch the diesel, as essentially, the higher the price, the higher the likelihood that businesses will opt for cleaner fuels.

Current red diesel duty

Red diesel, also known as gas oil, makes up around 15% of diesel use in the UK due to its low duty rate and is currently accountable for approximately 14 million tonnes of CO2 emissions every year.

At time of writing, red diesel has a duty rate of 11.14 pence per litre which is comparably less than the 57.95 ppl for white diesel. This rate has been in place since 2010, due to a 10-year freeze on fuel duty so it’s expected to come as a big adjustment for many businesses.

As its name implies, red diesel contains a red dye which is designed to leave behind traces in engines and pipelines so HMRC and environmental agencies can identify prohibited use. For example, when drivers have illegally used red diesel in road-going vehicles in place of white diesel to profit from the 81% discount that red diesel currently benefits from.  

This means that when those who will lose their red diesel entitlement switch over to white diesel, the dye residue would be left behind. Situations such as this could potentially mislead authorities to believe that anyone who has legally bought white diesel has illegitimately used red diesel in the past.

Nonetheless, the government is not asking businesses to empty or replace their tanks ahead of the ban, due to the high costs incurred. To help combat the issue, suppliers are being asked to replace or flush out fuel tanks and pumps in anticipation of the tax changes, to help avoid red diesel remnants lingering in tanks when delivering white diesel.

However, fuel suppliers are being asked to replace fuel tanks or flush out tanks and pumps before the red diesel tax changes to ensure no trace of red diesel remains when supplying white diesel. Suppliers will also be required to monitor the use of red diesel going forward and ensure that all fuel supplied to a sector that will lose entitlement uses all red diesel before this date.

The government has acknowledged that the change in red diesel eligibility will cause financial difficulties for a number of sectors so it launched a consultation period that ran between July 2020 and 1 October 2020 to give users the chance to submit their opinions on the proposed new legislation.

Responses are being evaluated and any sectors that ought to retain their entitlement will be considered, with HMRC set to publish draft legislation for consultation in 2021.

Red diesel in private pleasure craft

Private pleasure craft can currently use red diesel for propulsion and non-propulsion use; however, they must pay white diesel rates on fuel used for propulsion. However, at Budget 2020, the government announced that it will accept the Finance Bill 2020 legislation to prohibit red diesel in propel private craft. The details have not yet been confirmed, but the move is to achieve unity with the 2018 judgement by the Court of Justice of the European Union (CJEU) and ensure the UK is compliant with global requirements. 

As a result, private pleasure craft users will now be required to use white diesel for propulsion. They will still be permitted to use red diesel for non-propulsion such as for heat, light and to power appliances. However, they must use white diesel for both propulsion and non-propulsion if only one fuel tank is on board.

Sectors with 100% fuel duty relief

The red diesel ban will not affect existing fuel duty reliefs which give sectors 100% relief on fuel duty, even those which will no longer be entitled to use red diesel. So, commercial boats like ferries and fishing boats operating at sea or within the limits of a port will remain eligible for the Marine Voyages Relief.

The General Lighthouse Authorities and Royal National Lifeboat Institution (RNLI) will go on to benefit from full duty relief, even when swapping to white diesel from the 1st April 2022. But they must pay the standard 20% VAT that applies to diesel, instead of the reduced 5% rate of VAT that applies to up to 2,300 litres of red diesel.

HVO fuel

The current low cost of red diesel has arguably created a barrier for the rise in alternative fuels. Hopefully, the change in red diesel eligibility will generate a more competitive green fuel market and allow the cost of renewable fuels, like Hydrotreated Vegetable Oil (HVO), to fall.

HVO fuel adheres to the EN 15940 and ASTM D975 specifications, so it can be used as a drop-in alternative without adjusting your engines or operational infrastructure. In addition, HVO offers greatly extended storage properties and avoids diesel’s stability issues due to its chemical structure, which contains no FAME or aromatic compounds.

The advanced renewable fuel is made from 100% renewable materials and reduces net greenhouse gas emissions by up to 90%. Therefore, there is no better time to make the switch to HVO fuel and reap the benefits of a cleaner drop-in diesel alternative.

As one of the only bulk suppliers and stockists of HVO fuel in the UK, we can deliver nationwide 24/7 call us today on 0330 123 5665 or visit our HVO FAQ for a more detailed look at the fuel.

At Budget 2020, Chancellor Rishi Sunak announced a change in red diesel eligibility from the 1st April 2022, which means that many sectors will no longer be permitted to use red diesel to power their off-road vehicles and equipment. This will pose a huge challenge for many businesses but the change in legislation is just one of the steps needed to help improve air quality and assist the UK in achieving its net zero 2050 carbon target.

Red Diesel Eligibility Changes from April 2022

At Budget 2020, the government announced that from the 1st April 2022, it will remove the entitlement for most sectors to use red diesel, with the exception of agriculture, horticulture, fish farming, forestry, rail and non-commercial heating system users.

This means that any business operating outside of these sectors must use fuel that is taxed at the standard rate for white diesel. The change in legislation is needed to encourage red diesel users to ditch the diesel, as essentially, the higher the price, the higher the likelihood that businesses will opt for cleaner fuels.

Current red diesel duty

Red diesel, also known as gas oil, makes up around 15% of diesel use in the UK due to its low duty rate and is accountable for approximately 14 million tonnes of CO2 emissions every year.

Red diesel currently has a duty rate of 11.14 pence per litre which is much less than the 57.95 ppl for white diesel. This rate has been in place since 2010, due to a 10-year freeze on fuel duty so it’s expected to come as a huge challenge for many businesses.

As its name implies, red diesel contains a red dye which is designed to leave traces of the fuel in engines and pipelines so HMRC and environmental agencies can identify illegal use. For example, when drivers have wrongly used red diesel in road-going vehicles in place of white diesel to essentially profit from the 81% discount that red diesel currently benefits from.  

Those who will lose their red diesel entitlement can switch over to white diesel, however the dye could potentially cause the authorities to believe that anyone who has legally bought white diesel has illegitimately used red diesel in the past.

Nonetheless, the government is not asking businesses to empty or replace their tanks ahead of the ban, due to the high costs incurred. However, suppliers are being asked to replace or flush out fuel tanks and pumps in anticipation of the tax changes, to help avoid red diesel remnants lingering in tanks when delivering white diesel.

The government has acknowledged that the change in red diesel eligibility will cause financial difficulties for a number of sectors so it launched a consultation period from July 2020 to October 2020 to give users the chance to submit their opinions on the proposed new legislation.

Responses are being evaluated and any sectors that ought to retain their entitlement will be considered, with HMRC set to publish draft legislation for consultation in 2021.

Red diesel in private pleasure craft

Private pleasure craft can currently use red diesel for propulsion and non-propulsion use; however, they must pay white diesel rates on fuel used for propulsion. However, at Budget 2020, the government announced that it will accept the Finance Bill 2020 legislation to prohibit red diesel in propel private craft. The details have not yet been confirmed, but the move is to achieve unity with the 2018 judgement by the Court of Justice of the European Union (CJEU) and ensure the UK is compliant with global requirements. 

As a result, private pleasure craft users will be required to use white diesel for propulsion. They will still be permitted to use red diesel for non-propulsion such as for heat, light and to power appliances. However, they must use white diesel for both propulsion and non-propulsion if only one fuel tank is on board.

Sectors with 100% fuel duty relief

The red diesel ban will not affect existing fuel duty reliefs which give sectors 100% relief on fuel duty, even those which will no longer be entitled to use red diesel. So, commercial boats like ferries and fishing boats operating at sea or within the limits of a port will remain permitted to the Marine Voyages Relief.

The General Lighthouse Authorities and Royal National Lifeboat Institution will go on to benefit from full duty relief, even when swapping to white diesel from the 1st April 2022. But they must pay the standard 20% VAT that applies to diesel, instead of the reduced 5% rate of VAT that applies to up to 2,300 litres of red diesel.

HVO fuel

The current low cost of red diesel has created a barrier for the rise in alternative fuels. Hopefully, the change in red diesel eligibility will generate a more competitive green fuel market and reduce the cost of renewable fuels, like Hydrotreated Vegetable Oil (HVO).

HVO fuel adheres to the EN 15940 and ASTM D975 specifications, so it can be used as a drop-in alternative without adjusting your engines or operational infrastructure. In addition, HVO offers greatly extended storage properties and avoids the stability issues that diesel faces as it doesn’t contain the aromatic compounds and FAME content that is resent in fossil diesel.

The advanced renewable fuel is made from 100% renewable materials and reduces net greenhouse gas emissions by up to 90%. Therefore, there is no better time to switch to HVO fuel and reap the benefits of a cleaner drop-in diesel alternative.

For more information, call us today on 0330 123 5665 or visit our HVO FAQ for a more detailed look at the fuel.  

Source: Gov UK

Information accurate at the time of writing (20th October 2020).

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