The red diesel tax change is due to come into effect from the 1st of April 2022 and will limit the use of red diesel fuel. The government’s decision to remove tax relief on red diesel fuel for a number of industries means that those affected will either have to revert to using standard white diesel or explore newer fossil-free alternatives. In this blog post, we will discuss the red diesel fuel changes that are to be introduced in 2022, including who the red diesel law change will affect and red diesel fuel alternatives.
Red diesel (also referred to as gas oil, off-road diesel or ‘tractor diesel’) is a low duty form of white diesel that currently accounts for around 15% of diesel use in the UK and is responsible for almost 14 million tonnes of carbon dioxide emissions a year. The fuel can be used in untaxed off-road vehicles and is favoured by the agricultural, construction, marine, and technology industries.
As the name suggests, red diesel contains a red dye which enables HMRC and environment agencies to quickly and decisively identify prohibited use. As the fuel is minimally taxed, it is illegal to use red diesel in diesel engine road vehicles and penalties may include fines or having your vehicle detained. Authorities can detect misuse from red dye residue found in vehicle engines and pipelines.
All motor and heating fuels are subject to fuel duty; a tax imposed on the sale of fuel. However, different oil products are taxed at varying rates, with fuel intended for use in road vehicles typically taxed most heavily, as fuel duty was historically intended to be a tax for road vehicles. Fuels to be used in off-road vehicles such as red diesel are generally taxed at a lower or ‘rebated’ rate.
At the time of writing this article, red diesel has a fuel duty rate of 11.4p per litre, 46.8p per litre less than the 57.95p per litre duty rate for white diesel (gas oil intended for use in diesel engine road vehicles). A freeze on fuel duty since 2010 means that the red diesel law change in 2022 will come as a big adjustment to many who currently benefit from tax relief on red diesel fuel.
In the March 2021 Budget, the government confirmed their proposed plans to withdraw tax relief on red diesel fuel for a number of industries and applications.
From the 1st of April 2022, only the following industries and applications will be able to take advantage of tax relief on red diesel fuel:
Sectors that will no longer be able to benefit from red diesel include construction and road maintenance, logistics and haulage, mining and quarrying, oil and gas extraction, commercial heating, waste management, airport operations and ports, leisure, and manufacturing (including timber, ceramics, and steel).
The red diesel tax change is part of the UK government’s plan to reduce greenhouse gas emissions, in order to meet targets regarding climate change and air quality. In 2019, the UK passed laws guaranteeing that by 2050, it would no longer contribute to global warming – ambitious legislation requiring the UK to reduce greenhouse gas emissions to net-zero. The government also announced a bold new strategy to reduce air pollution, in response to the continued threat it presents to public health.
The removal of tax relief on red diesel fuel means that the majority of users will use fuel taxed at the same rate as motorists from April 2022. It is hoped that the red diesel law change will incentivise diesel users to invest in more energy-efficient vehicles and machinery, seek cleaner alternative fuels, or simply reduce their fuel consumption.
While the impact of the red diesel tax change on individuals, households, and families is expected to be minimal, businesses and organisations no longer entitled to tax relief on red diesel fuel will face increased fuel costs when switching to white diesel. As a result, businesses and organisations affected by the red diesel law change are encouraged to explore greener fuel alternatives or use less fuel.
One-off costs for current red diesel users as a result of the red diesel law change may include selling back excess red diesel stock to fuel suppliers, and the removal of red diesel from vehicles, machinery, and storage tanks. Likewise, fuel suppliers will have fewer red diesel customers and may need to decommission or flush out fuel tanks that are currently storing red diesel. Fuel tanks and supply lines must be cleaned thoroughly to remove all traces of red diesel, in order to avoid misleading authorities when the red diesel law change comes into effect.
Businesses and organisations that aren’t exempt from the red diesel tax change should focus on logistical considerations, ensuring that existing red diesel stocks are run down or sold back to suppliers before 1st April 2022.
One objective of the red diesel tax change is to incentivise the use of diesel alternative fuels such as biofuels, which produce fewer greenhouse gas emissions. Biofuels are renewable sources of energy produced from plant or animal material known as ‘biomass’ and can be used in place of oil and gas fuels such as diesel.
There are a number of different biofuels available in the UK, containing varying blends of biofuel and standard diesel. In certain engines these fuels can be mixed with regular diesel, making them especially convenient.
Diesel alternative biofuels available in the UK include:
Industries and applications unaffected by the red diesel changes coming into effect on the 1st of April 2022 will still be able to order, receive, and use red diesel as they could before the red diesel law change.
Road vehicles in the UK are not eligible for tax relief on fuel and are required to use fully duty paid petrol or diesel at all times.
The following tables outline fuel duty rates (in pence per litre) after the red diesel changes come into effect. Further information regarding tax relief on fuel can be found here.
Private pleasure craft users in the UK are currently required to pay white diesel rates on fuel used for propulsion, although they are permitted to use red diesel fuel for both propulsion and non-propulsion use.
The March 2021 Budget stated that the treatment of private pleasure craft in Great Britain will remain the same – they will still be able to use red diesel for propulsion and pay their fuel supplier the difference in rate between red and white diesel.
However, in order to ensure that the UK meets international obligations under the Northern Ireland Protocol of the Withdrawal Agreement, private pleasure craft in Northern Ireland will no longer be permitted to use red diesel for propulsion. They may still use red diesel fuel for non-propulsion, but if only one fuel tank is on board then private pleasure craft must use white diesel for all purposes.
Alongside the red diesel changes coming into effect in 2022, the March 2021 Budget also discussed freezing tax rates and rising fuel prices.
As well as the red diesel tax change, the March 2021 Budget confirmed that fuel duty will remain frozen for an 11th consecutive year, in order to support families and businesses affected by the pandemic. This means that the tax on petrol and diesel sales will remain at 58p per litre plus VAT until the start of the 2022 financial year, instead of increasing with inflation. Fuel duty rises are set to be considered in the future, as part of the government’s plans to reduce emissions to net-zero by 2050.
Fuel prices in the UK have hit a nine-year high as the cost of oil continues to rise. At the time of writing this article, the average price for a litre of petrol in the UK was 140.22p, just 2p less than the record high that drivers saw in April 2012. According to RAC Fuel Watch data, prices have increased by 22% in the last 12 months, meaning a litre of petrol now costs 26p more than this time last year.
The RAC describes the rising cost of oil – which has doubled in the same period – as a major factor in rising UK fuel prices. The increase means that drivers are also paying 4p more in VAT per litre of petrol than they were in October 2020. Additionally, the switch to E10 petrol in September (which saw the biofuel content of petrol increase from 5% to 10%) has added around 1p per litre to the price of petrol in the UK, before VAT is applied.
Together with increasing domestic energy prices, rising fuel costs are another financial strain for households that rely on their vehicles and, as a result, the economy. RAC fuel spokesman Simon Williams notes that cutting fuel duty in an attempt to reduce fuel costs might not be the best solution, as retailers may swallow up the benefit intended for drivers. A temporary reduction in VAT on motor fuel would likely be more effective since VAT is charged on the final cost at pumps.
A number of industries and users will be affected by the upcoming red diesel tax change, part of the government’s promise to reduce greenhouse gas emissions to net-zero by 2050. While the higher price of white diesel and one-off costs such as decommissioning or flushing out red diesel fuel tanks may pose a challenge for businesses, it is hoped that the red diesel law change will incentivise rebated fuel users to reduce their fuel consumption and seek greener diesel alternatives. At RPM Fuels & Tanks, we’re pleased to offer a variety of fuel tanks and equipment from a wide range of trusted manufacturers, helping those affected by the new legislation make the switch from red diesel to alternative fuels.