15 April 2021

Upcoming changes to red diesel taxation

In the March 2021 budget, the Government confirmed forthcoming changes to red diesel taxation, with plans to withdraw tax relief for red diesel for a number of sectors and user groups. Here’s a short overview of the upcoming duty changes and the potential implications for your business.

What is red diesel?

Otherwise known as gas oil, off-road diesel or ‘tractor diesel’, red diesel is a fuel intended for use other than as fuel in road vehicles, and is therefore taxed at a lower rate. Due to its rebated duty rate, there are strict legal requirements about when and how it can be used, which is why it is dyed red to help identify illegal use. Red diesel is typically used for off-road transport, for power generation and for selected commercial heating or burning uses.

What's changing?

From 1st April 2022 onwards, distributors such as Watson Fuels will only be able to supply red diesel for selected applications, including:

• For agriculture, forestry, horticulture and fish farming. This includes agricultural vehicles used for cutting verges and hedges, snow and flooding clearance and gritting roads.
• As fuel to propel passenger, freight or maintenance vehicles designed to run on rail tracks.
• For non-commercial heating. This includes the heating of homes and buildings used for other non-commercial purposes, such as places of worship and townhalls, and heating (and other non-propulsion uses) on permanently-moored houseboats.
• The commercial boat operating industry, including but not limited to the fishing and inland water freight industries and passenger ferries.
• The travelling fairground and circus industries when diesel is used for powering their machinery (including their caravans).
• Non-commercial power generation (for example hospitals), including households that rely on red diesel for electricity generation in areas not connected to the electricity grid.
• Amateur sports clubs as well as all golf courses. This includes activities such as ground maintenance and the heating and lighting of the clubhouse and changing rooms. Amateur sports clubs will need to be registered as community amateur sports clubs (CASCs)to qualify. You can see the full list of qualifying applications here.

What does this duty change mean for your business?

The exact implications for your business will depend on your industry and which application you’re using red diesel for. If your application is included in the above list of qualifying uses, there will be no change at all. You can continue to order, receive and use red diesel after the changes come in.

Sectors and applications that don’t fall into the above categories – which includes our construction, and manufacturing customers, as well as a number of transport and logistics uses – will no longer be able purchase or use red diesel from 1st April 2022.

For these businesses, the change means significant cost increases. Marked gas oil currently attracts a fuel duty rate of 11.14 pence per litre. When select businesses are no longer entitled to buy and use red diesel, they will need to switch to regular white diesel, which attracts a duty rate of 57.95 pence per litre – that’s an increase of 46.81 pence per litre. For a firm using 100,000 litres of red diesel per year, this would equate to annual cost increases of £46,810.

There are also logistical considerations. Government advice is that users of vehicles and machinery losing their red diesel entitlement must ensure they run down their existing stocks before 1st April 2022. There will be no grace period to use up ‘old stocks’ after this point.

The government has also suggested that when a business switches from storing red to white diesel, it will need to flush out the tank and supply lines until no trace of marked rebated fuel remains by 1st April 2022. Through UKIFDA, we are pushing for further detail from the government, and working to further understand the specific instruction, guidance and responsibilities of distributors and customers in managing this switchover process.

Is now the time to switch to Furnaceflame™?

If you are currently using red diesel for heating applications – in boilers or burners – we recommend switching to an industrial heating oil alternative, such as Furnaceflame™, as soon as possible. A cost-effective alternative to red diesel, Furnaceflame is designed solely for use in heating and drying applications such as boilers, burners and heaters. As it does not attract the same duty rate as red diesel, it is exempt from these duty changes¹.

Furnaceflame™ is also made from virgin components sourced from UK and European refineries, making it a high-quality oil that keeps equipment running efficiently and reduces the risk of plant failure due to fouling. We have other alternative heating oils that may suit your business better, along with lubricants that will help protect your machinery and keep your operations running smoothly. Your local depot team can take you through your options, so please call them to discuss your requirements.

How much does Furnaceflame™cost?

Switching to Furnaceflame™ could help you save money as well as preventing the cost increases associated with the red diesel entitlement changes. Furnaceflame™ doesn’t need to meet the exacting standards for use in off-road mobile plant engines, meaning it costs less to produce – and businesses benefit from these savings.

¹Customers should also be advised that other fuels that are currently subject to duty rebates for certain applications, such as kerosene and fuel oil, are also currently under government review. Any further changes will be communicated when confirmed.