Red Diesel Eligibility: 2020 Budget Taxation Changes

The government has proposed a change in red diesel eligibility which will restrict the use of red diesel in most sectors from 1 April 2022.

The UK is serious about tackling climate change. It is paving the way to a greener future and is at the forefront of global environmental commitments. Incentivising red diesel users to invest in cleaner alternatives through its tax system is just one of the measures being implemented to help achieve its 2050 net zero carbon target.

Businesses that will lose their red diesel entitlement are advised to replace existing fuel stocks now, while the red diesel market is still strong. Our engineers can clean your tank and remove any remaining rebated fuel to ensure it’s compliant before 1st April 2022.

Current Government guidance advises that from March 2022, fuel suppliers will not be able to supply red diesel to customers whom it suspects will not use the fuel before April 2022. Therefore businesses will see an increase of 45.81ppl in their fuel costs as they will be required to switch from red diesel to DERV and pay the additional duty.

As the deadline approaches, red diesel values are falling by as much as 10% every month. Switch your fuel stocks now to get the maximum return for your unusable assets.

red diesel eligibility

What is red diesel?

Red diesel, also commonly referred to as gas oil, is used solely for off-road purposes, such as within the construction, marine and agricultural sectors.

Despite diesel is one of the least environmentally friendly fuels, so users currently pay a duty rate of 11.14 pence per litre (ppl) which is considerably less (46.81ppl) than those using regular diesel (57.95ppl), effectively giving it an 81% discount.

Essentially, this means that red diesel users are paying less than single-car owners for the harmful emissions they produce, even though the emissions released from using 1 litre of diesel are largely the same.

This rate has been in place since 2010 because of the 10-year freeze on diesel fuel duty. Since 1961, gas oil contains a red dye to identify it from regular diesel (hence red and white diesel). This enables law enforcement agencies and HMRC to identify illegal use due to the duty difference.

Read our Red Diesel FAQ for a deep dive into the rebated fuel.

Who can currently use red diesel?

  • Commercial and domestic heating users, such as off-the-grid homes, grain dryers and animal sheds
  • Stationary engines, such as in generators to provide back-up power in large commercial buildings. hospitals and data centres
  • Mobile machinery, such as transport refrigeration units
  • Boats and ships operating at sea or on inland waterways
  • Rail, such as freight trains
  • Off-road construction machinery, such as excavators, tractors and JCBs

Red diesel budget 2021

The government has recently announced that it will remove the entitlement to use red diesel from most sectors from April 2022. As a result, businesses will have to use fuel that is taxed at the standard rate for white diesel in order to reflect the damaging environmental impact of using the fossil fuel more fairly and to encourage users to switch to more environmentally friendly fuels.

What sectors remain eligible for red diesel?

The sectors that will remain eligible for red diesel use from April 2022 are:

  • Agriculture, forestry, horticulture, fish farming
  • Railways
  • To power non-commercial heating systems such as in homes, narrowboats and places of worship
  • Commercial boating industry, including fishing and inland water freight industries and passenger ferries
  • Non-commercial power generation, such as hospitals and off-the-grid households
  • Travelling funfairs and circuses
  • Amateur sports clubs, including golf courses

The government acknowledges the significance of red diesel to the agriculture sector, and likewise forestry, horticulture and pisciculture. All three sectors are closely linked to agriculture, so they are likely to be treated unanimously.

In addition, removing the red diesel entitlement for passenger or freight journeys runs the risk of creating contradictory environmental outcomes, such as pushing passengers to increase their reliance on roadgoing transport such as coaches, cars and lorries due to costs incurred.

The government says it will review the use of red diesel in rail once more viable alternatives become available.

Likewise, banning red diesel for domestic heating users would hugely increase heating bills, particularly homeowners who are off-the-grid with no alternative and those who are considered to be vulnerable.

Why is red diesel being banned for some industries?

Red diesel accounts for around 15% of diesel consumed in the UK and is responsible for approximately 14 million tonnes of CO2 released into the atmosphere every year.

It is estimated that red diesel in the construction and infrastructure building sectors caused 7% of NOx emissions and 8% of PM10 emissions (a type of particulate matter) in London during 2018 alone.

The thought behind the red diesel ban is that more expensive diesel will provide businesses with the motivation to improve the energy efficiency of their business operations and seek more environmentally friendly alternatives.

Why are the changes not coming into effect until April 2022?

While this decision is putting the UK on the right road for its environmental goals, the government recognises that this will be a huge challenge for many businesses. Therefore, the delay is to give businesses the time to prepare before any changes come into place.

Red diesel consultation period

In addition, the government implemented a consultation period that ran between July 2020 – 1 October 2020 to give red diesel users the opportunity to voice their concerns about the change in red diesel eligibility.

Governing bodies will evaluate all responses and consider any claim made by a sector to retain their red diesel entitlement. It will publish a summary of responses within 3 months of closing and will propose the steps later this year.

HMRC will then publish draft legislation for consultation in 2021.

Existing duty reliefs

The government has not proposed to change any existing fuel duty reliefs which give specific sectors 100% relief on fuel duty, even where these relate to using fuel in sectors which will no longer be permitted to use red diesel.

This includes commercial boats operating within the limits of a port or at sea, such as ferries and fishing boats will remain entitled to the Marine Voyages Relief, whereas the General Lighthouse Authorities and the Royal National Lifeboat Institution will continue to benefit from full relief from fuel duty even when switching to white diesel from 1 April 2022.

Nonetheless, they will have to pay the standard 20% VAT rate that applies to diesel instead of the reduced 5% rate of VAT that red diesel supplies of up to 2300 litres are subject to.

To support the development of alternative diesel sources, we call on the government to reduce the cost of renewable substitutes such as HVO (Hydrotreated Vegetable Oil) to reduce the price barriers and increase the availability of the fossil-free fuel sooner.

Private pleasure craft

Private pleasure craft users are currently permitted to use red diesel for propulsion and non-propulsion use. However, they must pay white diesel rates for the fuel used for propulsion.

At Budget 2020, the government announced that it would include allowing legislation in the Finance Bill 2020 to ban red diesel in propel private pleasure craft, with the specifics on the implementation to be set out in the near future.

This will achieve uniformity with a 2018 judgment by the Court of Justice of the European Union (CJEU) and ensure the UK meets its global obligations. This will not affect private pleasure craft users’ right to use red diesel for non-propulsion.

Once implemented, private pleasure craft users must use white diesel for propulsion in place of red diesel. This will not affect the fuel duty rate paid on fuel used for propulsion as private pleasure craft will already be paying the standard white diesel rate for this fuel.

The government recognises that this will cause many challenges for private pleasure craft, so it has been consulting with users to understand how they will implement the changes. The government has yet to announce when these changes will come into force.

Red diesel in private pleasure craft for non-propulsion uses

Private pleasure craft will still be permitted to use red diesel for non-propulsion uses, such as for:

  • Heating
  • Lighting
  • Powering appliances

However, if they only have one fuel tank on board, they must use white diesel for all purposes.

2020 budget changes to tax on rebated biofuels

Neat biodiesel and biodiesel blended with gas oil for non-road use are also currently subject to a rebated duty rate of 11.14ppl. The government announced at Budget 2020 that it would also scrap the application of reduced rates to biofuel from 1 April 2022, like red diesel.

What does this mean?

Biodiesel for non-road use and that blended with gas oil for non-road use will also be subject to the standard biodiesel road duty rate (currently 57.95ppl), except for those sectors that will retain their entitlement to use red diesel.

These changes will apply to those who use biodiesel and biodiesel blended with gas oil for heating:

  • Commercial heating use will be subject to the standard biodiesel road fuel duty rate
  • Non-commercial heating use will be subject to the rebated duty rate of 11.14ppl

The changes are intended to ensure that the duty paid on diesel and biodiesel for non-road use remains aligned.

Ensuring compliance for red diesel users

Sectors that are set to lose their red diesel entitlement can switch to white diesel. However, the chemical markers (dye) used in red diesel is designed to linger in fuel tanks and pipes. This could cause the authorities to think that anyone who has legally purchased white diesel has misused red diesel previously.

Fuel suppliers

To reduce the risk of this occurring, the government proposes fuel suppliers replace fuel tanks or flush out tanks and pumps until no trace of the rebated fuel remains in anticipation of the red diesel tax changes.

It recognises that this will incur a cost to fuel suppliers, but it will be a huge help to HMRC to aid compliance and detect any misuse of red diesel.

Fuel distributors will also have to police the use of red diesel going forward and ensure that all fuel supplied to a sector losing entitlement uses all low tax diesel ahead of this date.

Fuel users

The government doesn’t propose red diesel users to flush out the tanks of their vehicles and/or machinery due to the cost involved. This will also avoid damage to the environment that could arise from the unsupervised and unsafe disposal of red diesel.

The penalties for using red diesel after 1 April 2022

To ensure compliance, red diesel users must run down existing stocks of red diesel before 1 April 2022. If vehicles and machinery are found with red diesel marker in fuel supplies after this date, they could be seized, as well as the fuel.

While it’s considered a criminal offence, the user will have the opportunity to appeal if they believe they are still authorised to use the gas oil. Fuel used in sectors that are no longer eligible will be liable for fines.

How can Beesley Fuels help?

Beesley Fuels can help you replace your red diesel and find the most productive and cost-effective solution. We offer a complete solution, including full consultancy and advice with all your needs.

We can buy back your red diesel

We can remove and buy back your red diesel, giving you the opportunity to sell at the best possible price before rates plummet further.

We can handle all aspects of tank safety to ensure your tank is compliant with all relevant standards, including:

  • Fuel uplift of rebated stock & buyback rebated fuel
  • Tank clean if required
  • NDT tank inspection if over 10 years old
  • HVO fuel supplied at competitive rates with excellent credit terms available

HVO fuel is a drop-in alternative to diesel

While the proposed red diesel ban brings many challenges for the sectors involved, we are here 24/7 to provide support and advice on how to overcome these hurdles.

HVO fuel is a synthetic diesel alternative produced from renewable raw materials. FAME and fossil-free, HVO is a pure paraffinic hydrocarbon that does not contain the aromatic compounds which are present in conventional diesel.

It adheres to both the EN 15940 and ASTM D975 specifications, so it can be used as a drop-in diesel replacement which means you don’t need to make any modifications to your engines or their peripherals.

HVO has been approved by the majority of OEMs and is supported by all major engine manufacturers, causing zero impact on equipment and vehicle warranties.

The low cost of red diesel has previously created a barrier for alternative fuels, so we hope the ban will create a more competitive green fuel market and bring down the prices of renewable fuels such as HVO fuel.

Source: Gov.uk

Information accurate at the time of writing (June 2021).

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