New duty rules mean big changes for some users!
As you may know from some of our previous posts, the UK government announced changes to the rules on rebated diesel usage and this has since been a source of confusion and concern across UK businesses and, in particular, the construction sector.
As of 1 April 2022, red diesel will no longer be available at a rebated rate for many commercial applications. This covers the majority of users in the construction industry. Government guidelines specify which uses of red diesel will still be permitted. However, there is some ambiguity around some applications and usage scenarios. As a result, users in construction must actively consider their eligibility in order to ensure compliance, while also working to maintain optimum costs. Below the CPS Fuels Commercial team have highlighted some of the key questions and challenges construction industry professionals may be facing.
Why can construction no longer access red diesel?
It is not solely the construction industry. But, many current users of red diesel will lose their eligibility to use rebated fuel. This is part of the government’s efforts to meet carbon reduction and air quality targets by focusing on three areas.
1. Beginning to tax most users at the standard rate for diesel is to reflect the impact of the emissions.
2. Secondly, it will promote energy efficiency.
3. Finally, it will help promote the use of cleaner fuel alternatives, such as our fossil fuel free alternative HVO.
Note: "Alternatives" are still subject to duty as the Government measure will also extend fuel duty to biodiesel, bioblends and fuel substitutes. This means that the duty change cannot be avoided by moving to an "alternative".
What are the financial implications of the rule changes?
Red diesel (gas oil) attracts a rebate of 46.81 pence per litre (ppl), giving it an effective duty rate of 11.14ppl. Whilst, White diesel (DERV) on the other hand, has no rebate, which means a duty rate of 57.95 ppl. Therefore, making a straight switch from red to white diesel would incur an additional expense of 46.81 pence per litre used. This results in five times as much duty as before. This will have a significant impact on costs as well as cash flow for many businesses. This is why now is the time to consider fuel options and alternatives, as well as optimal fuel efficiency for plant and equipment.
At the same time, construction companies must also contend with a number of challenges including one-off costs in order to stay compliant. These may include the costs of removing or running down red diesel, purchasing additional tanks, vehicles or equipment, sourcing alternatives before the April deadline.
Furthermore, as both red and white diesel become yet more attractive targets for theft, the high number of vehicles and large stores of fuel at construction sites are coming under particular threat.
What do construction industry professionals need to know about?
The biggest change will be that heavy construction equipment of all kinds will be banned to use red diesel. In turn, this will make a large financial impact on the industry.
Red diesel will also no longer be permitted for commercial heating and power generations. These power generators are usually used to run construction sites. It is important to note that permissions apply not to types of equipment, but to their specific uses. So for example, equipment that can be used in both an agricultural setting and in a construction setting will still be able to use red diesel, but only when used for agricultural purposes. As such, contractors will not only need supplies of both red and white diesel but may also need two sets of plant/equipment unless completely flushing tanks and supply lines in between uses.
How can construction companies stay compliant with red diesel rule changes?
The construction industry needs to run down its existing stocks of red diesel in advance of the April deadline. It is not necessary to flush tanks to remove every trace, but it is important to be able to prove that red diesel has not been purchased after the April 2022 deadline, or soon before in order to stock up. HMRC auditors will require evidence of previous purchase and usage volumes to evidence no stockpiling. It has therefore never been more important to keep receipts and records in good order and make alternative plans ahead of time.
What are the potential consequences of using Red Diesel after the ban?
The government has indicated the likelihood of spot checks on-site, with significant monetary fines handed out for non-compliance.
What alternatives to red diesel should construction industry professionals consider?
The good news is that there is plenty of time for the construction industry to explore alternatives to red diesel. The commercial team at CPS Fuels are here to help the sector get ready for 1 April 2022 and beyond as all oil users take on the journey to net-zero carbon 2050. With net-zero in mind we are proud to offer to you to our brand new fossil free alternative fuel HVO.
What is fossil free HVO you ask?
Fossil free HVO (hydro-treated vegetable oil) is a renewable diesel replacement made to EN15940 standard. It is the lowest emission diesel replacement fuel available. HVO is made entirely from waste and is defined as renewable and sustainable (RED11), whilst being highly refined. It is a genuine green drop in alternative to diesel.
You can use HVO in any diesel engine without requiring any changes to the engine. Manufacturers have approved HVO and identified there is no degradation in performance. HVO burns more cleanly and more thoroughly helping you save in costs in fuel efficiency. This bio-degradable fuel is an ideal replacement for Red Diesel and is OEM approved.
Building a better environment with CPS Fuels
The commercial team at CPS Fuels are here to support the construction industry through its transition from red diesel, and beyond, no matter how much your business is affected by the changes.
If you require further product information, options, assistance or prices, then please contact us on 01953 713540.