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Will you feel the impact of the changes to tax relief on red diesel?

In June 2019, the UK became the first major economy in the world to pass laws guaranteeing an end to its contribution to global warming by 2050. The target will require the UK to bring all greenhouse gas emissions to net-zero by 2050.

At Budget 2020, the government therefore announced that it would remove the entitlement to use red diesel and rebated biodiesel from most sectors from April 2022 to help meet its climate change and air quality targets. By March 2021 Budget, changes to tax relief for rebated gas oil (red diesel) were confirmed by the Chancellor of the Exchequer which have resulted in a withdrawal of the tax relief for certain sectors and applications. This new legislation comes into force on 1st April 2022 after which point red diesel will only be supplied for a limited list of applications.

The implication of this change in legislation will depend on your industry and use of the fuel. It will affect, for example, businesses in construction, mining and quarrying, ports, manufacturing (e.g. ceramics, steel, timber), haulage (for transport refrigeration units on lorries), road maintenance, airport operations, oil and gas extraction, plant hire, logistics and waste management.

For businesses in these sectors, there will be a significant cost increase as switching to regular white diesel will mean they need to pay the full duty rate which will increase the price paid from around 60 pence per litre to 120 pence per litre. This measure is expected to incentivise these rebated fuel users to seek greener alternatives or simply use less fuel.

What is red diesel? Red diesel is the name given to diesel fuel that is used ‘off-road’, also known as gas oil, cherry red, or tractor diesel. As it is used for a wide range of agricultural, plant and construction equipment including generators, diggers, harvesters, tractors and other off-road machinery; off the public roads, it is taxed at a lower rate. However, there are strict requirements for when it can be used, so it is dyed red for identification purposes.

Due to the changes coming, many now have questions regarding its usage, purpose or legality. As the rules and regulations surrounding its use are changing, it’s imperative that you keep up to date so that you remain on the right side of the law. For individual requirements and laws surrounding your own usage, you can check with HMRC here www.gov.uk/government/publications/changes-to-rebated-fuels-entitlement-from-1-april-2022

The Government has warned those losing their red diesel entitlement that there will be no ‘grace period’ to use up old stocks after April 1st 2022 arrives. All stocks must be used up before this date.

A number of applications will remain unaffected by the changes, and will still be able to purchase and use red diesel:

  • Vehicles and machinery are used for agriculture, horticulture, fish farming and forestry. Including vehicles used for cutting verges and hedges, clearing snow and gritting roads.
  • Passenger, freight or maintenance vehicles that are designed to run on railway tracks.
  • Heating and electricity generation in non-commercial settings. including heating homes and buildings, places of worship, hospitals and town halls; off-grid power generation; and non-propulsion uses on permanently moored houseboats.
  • The maintenance of community amateur sports clubs and golf courses (including ground maintenance, heating, lighting and changing rooms etc.)
  • Marine craft refuelling and operating in the UK (including fishing and water freight industries), except for private pleasure crafts in Northern Ireland.
  • Powering machinery (including caravans) of travelling fairs and circuses.

 The aim of removing most red diesel entitlements will help to ensure that the tax system incentivises users of polluting fuels such as diesel to improve the energy efficiency of their vehicles and machinery, to invest in cleaner alternatives, or just use less fuel. Therefore, the tax changes should have a positive impact on carbon emissions and air quality.

For many of our customers, the use of power generation equipment is not however optional, and so we continue to find new, cleaner ways to support the critical power needs of many industries.

Innovative gas-powered systems use gas as an alternative fuel delivering the same performance characteristics as diesel with added benefits of reduced exhaust emissions, reduced environmental pollution risks, and no requirement for bulk fuel storage.

Find out more about our gas range here.

Red Diesel Construction min
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