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Posted on: 14/05/2021

Changes to red diesel taxation - Mister C explains

Changes to red diesel taxation - Mister C explains

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. Mister C has provided 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 CPS 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).
• Registered community amateur sports clubs (CASCs) as well as all golf courses. This includes activities such as ground maintenance and the heating and lighting of the clubhouse and changing rooms. 

You can see the full list of qualifying applications within the HMRC document 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, manufacturing and processing 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 organisations, the change means significant cost increases. Marked gas oil currently attracts a fuel duty rate of 11.14 pence per litre. When businesses are no longer entitled to buy and use red diesel, they will need to switch to regular white diesel (ULSD), which attracts a duty rate of 57.95 pence per litre. For a firm who used just 10,000 litres of red diesel per year, the annual cost will increase by more than £4600 due to the duty change alone.

How long do you get to make the change?

Current 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 meaning that firms must handle the logistical challanges of the change earlier rather than later.

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 our trade organisation UKIFDA, we are pushing for further detail from the government, and working to understand the specific instruction, guidance and responsibilities of distributors and customers in managing this switchover process.

Is now the time to switch to BurnBright?

If you are currently using red diesel for heating applications – in boilers or burners – we recommend switching to a drop in industrial heating oil alternative, such as BurnBright, as soon as possible. A cost-effective alternative to red diesel, BurnBright 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 changes. BurnBright is made for CPS Fuels by a leading UK bespoke refiner to perform like Gas Oil and keep your equipment running economically and efficiently. 

How much does BurnBright cost?

Switching to BurnBright could help you save money as well as preventing the cost increases associated with the red diesel entitlement changes and we'd be pleased to quote you today.

We also have other alternative heating oils that may suit your business better, along with storage and performance additives and lubricants that will help protect your machinery and keep your operations running smoothly.

When do you need to start planning?

With these changes less than a year away; our team would be pleased to talk you through and explore your options. Please call Commercial 01953 713540 today to discuss your requirements or find out more.

CPS Fuels Delivery Tanker at a Construction Site

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