Red Diesel Changes

How will red diesel rule changes affect the construction industry?

Red diesel tax relief for most sectors, including construction, will be withdrawn from 1 April 2022. From this date, most users of red diesel will need to use white diesel, which is taxed at a higher rate.

The government says these changes will ensure that most users of red diesel use fuel taxed at the standard rate to more fairly reflect the harmful impact of the emissions they produce.

There are some exemptions. In the following circumstances, red diesel may still be used from 1 April 2022:

• For vehicles and machinery used in agriculture, horticulture, fish farming and forestry, including cutting verges and hedges, snow clearance and gritting roads
• In passenger, freight or maintenance vehicles which run on rail tracks
• Heating and electricity in non-commercial premises, such as homes, places of worship, hospitals and off-grid power generation
• Community amateur sports clubs as well as golf courses
• Fuel for all marine craft refuelling and operating in the UK, except for propelling private pleasure craft in Northern Ireland
• Powering the machinery of travelling fairs and circuses.

What is red diesel?

Rebated gas oil, or red diesel, is taxed at a lower rate as it cannot be used in road vehicles. Also known as tractor diesel, gas oil and off-road diesel, it’s mainly used for off-road purposes, such as to power cranes or mobile generators. There are strict regulations about when and how it can be used.

The rebate for gas oil has existed since the introduction of fuel duty in 1928, as fuel duty was intended to be a motoring tax and gas oil mainly used for heating.

Since 1961, it has been a requirement for rebated diesel to be marked with a red dye and chemical markers to prevent its use in road vehicles.

Red diesel use accounts for 15% of total diesel for the UK. It is subject to 46.81 pence per litre less fuel duty than road fuel or white diesel. It also has a reduced 5% rate of VAT for supplies up to 2,300 litres.

The reduced rate effectively provides an 81% discount and costs the government around £2.4 billion a year in revenue compared to if red diesel was charged at the main rate.

Why the change?

The change is being made to help meet the government’s climate change and air quality targets. In June 2019, the UK passed laws guaranteeing it would end its contribution to global warming by 2050. This means the UK needs to bring all greenhouse gas emissions to net zero by 2050.

Red diesel currently produces just under 14 million tonnes of carbon dioxide a year. In London in 2018, red diesel used in the construction and building sectors was estimated to have caused 7% of nitrogen oxide emissions and 8% of particle pollution (PM10) emissions.

The government also hopes that removing most red diesel tax relief will encourage businesses to improve the energy efficiency of their vehicles and machinery, invest in greener alternatives, or use less fuel.

Criticism of the new rules

The cost to companies of the new rules is causing concern, with the Road Haulage Association (RHA) estimating that they will cost small hauliers and businesses £1.4bn.

It is calling on the government to defer the withdrawal of the red diesel rebate by one year and take a phased approach.

Rod McKenzie, director of policy and public affairs at the RHA, said: “UK hauliers have done a heroic job in keeping the economy running during the Covid crisis.

“Punishing them with a red diesel tax hike is damaging to their business. We urgently call on the government to reconsider this move.

“Small hauliers operating on thin margins simply cannot cope with the added pressure of the loss of the red-diesel rebated fuel in April which would add over 1% in running costs for a lorry.”

Increasing global oil prices and fuel demand means the UK is seeing near record diesel prices. The RHA says that the cost of operating a 44-tonne truck has already increased by nearly 17% in the past year.

What do businesses need to do?

The end of red diesel tax relief will have significant cost implications and it’s important to plan for these in the run up to 1 April 2022. Businesses should also run down stocks of red diesel in storage tanks.

From 1 April, businesses must use diesel or biofuels which have had full duty paid. Red diesel must not be put into vehicles or appliances which are no longer entitled to use it.

If there is red diesel still in your vehicle or appliance’s tank on 1 April 2022, you can continue to use it if it was legally put into the vehicle or appliance before this date.

It’s important for businesses to keep evidence that any red diesel was put in before the rule changes and that they have refilled with white diesel from 1 April 2022. HMRC may carry out spot checks and traces of red diesel are likely to remain in fuel tanks.

Red diesel in storage tanks must be disposed of correctly and safely, or transferred to someone who is still allowed to use it, before 1 April 2022. Tanks do not need to be flushed out as this could cause accidental environmental damage. It’s vital that businesses keep records which show how and when any red diesel was disposed of.

It’s important to abide by the new rules as HMRC can seize vehicles and machines found to be unlawfully using red diesel. Perpetrators could face fines or jail time.

For more information, HMRC has published guidance for fuel users on preparing for the change.

How can SafeSite help you?

With an increase in theft cases already being reported on construction sites, SafeSite can help you mitigate those risks with our range of CCTV and alarms solutions to ensure better security and loss reduction.