On 1st April 2022, it became illegal to use red diesel in all but a few specified situations.
Red diesel (also known as rebated fuel) has commonly been used to power off-road vehicles and equipment across a range of industries from construction to road maintenance, manufacturing, waste management and farming. It could also be used in heating, particularly for homes and businesses which are off-grid.
Red diesel contains red colouring, to make it clear that it is being used correctly. Red diesel historically was designed to be used off-road and was taxed at a much lower rate, because fuel duty was intended specifically as a tax on road vehicles.
The difference in tax between red diesel and everyday (white) diesel is around 47p per litre.
Now many businesses which have always used red diesel have to switch to white diesel and pay the full fuel duty. This new measure was introduced by the Government as part of its net zero plan. In 2019, the UK was the first major economy to pass laws guaranteeing an end to its contribution to global warming by 2050.
Before April 2022, red diesel accounted for around 15% of all the diesel used in the UK and was responsible for the production of nearly 14 million tonnes of carbon dioxide per year. Red diesel used in the construction and infrastructure building sectors alone was estimated to have caused 7% of the UK’s nitrogen oxide emissions.
The new legislation has removed the distinction between on and off-road uses and has instead introduced a distinction between ‘allowed’ and ‘not allowed’.
The tax changes will ensure that most former users of red diesel will use fuel taxed at the standard rate like motorists, reflecting the harmful impact of the emissions they use.
With more industries being forced to pay full fuel duty on their operations, the aim is for them to look for more sustainable and energy efficient forms of fuel for their vehicles and machinery – or to at least cut down on their fuel consumption.
Red diesel will now only be allowed in the following situations:
- For vehicles and machinery used in agriculture, horticulture, fish farming and forestry. This includes allowing vehicles used for agriculture to be used for cutting verges and hedges, snow clearance and gritting roads
- For trains carrying passengers or freight or for railway maintenance purposes
- For heating and electricity generation in non-commercial premises - this includes homes, places of worship, hospitals and town halls; off-grid power generation; and non-propulsion uses on permanently moored houseboats
- For maintaining community amateur sports clubs, as well as golf courses (including ground maintenance and the heating and lighting of clubhouses, changing rooms etc.)
- Fuel for all marine craft refuelling and operating in the UK (including fishing and water freight industries), except for propelling private pleasure craft in Northern Ireland
- For powering the machinery (including caravans) of travelling fairs and circuses
It is important to note that agricultural purposes doesn’t necessarily mean the same thing as work on agricultural land.
HMRC defines agriculture as: The growing and harvesting of crops for food, beverages, fodder, fuel or industrial purposes; or the rearing of animals for the production of food, wool, leather, fur or other substances.
So, among other things, agriculture doesn’t include rearing or keeping horses or any other animals for ‘sport or recreation’. It also doesn’t include dealing in agricultural products from a farm premises or any construction of agricultural buildings. And while it includes things like harvesting crops and making straw bales on agricultural land, it doesn’t include transporting them to suppliers etc.
But apart from those few exceptions, farmers and those working in agriculture should be able to continue to use red diesel.
It is the construction industry which will perhaps be hit the hardest. Red diesel is no longer allowed for any construction uses or vehicles, whether or not they are off-road, including cranes and bulldozers.
Construction companies will inevitably see a huge rise in their fuel costs, as a result of the changes.
When quoting for new jobs, construction firms will need to include the price of using white diesel and make sure that customers are aware that the use of red diesel is no longer legal in construction, even off-road.
If construction firms are hiring machinery to use on site, it is their responsibility to check what fuel is in the equipment before they turn it on. But hire companies should also be regularly checking what fuel their customers are putting into tanks and whether they are using it legally.
Construction firms should keep items such as fuel receipts and invoices, hire contracts and driver time sheets, as well as records of what type of activities machinery is used for, in case of investigations or queries into their fuel use.
While it isn’t permitted to put red diesel into vehicles or appliances which are no longer entitled to use it, it is possible to run down any remaining red diesel which is still in the tanks, as long as it was legally put into the tanks before 1st April 2022.
However, any red diesel in storage tanks must be either disposed of safely or transferred to a business which is legally allowed to use it after 1st April.
It is likely that traces of red diesel will remain in tanks for some time after the changes. Businesses need to be aware that HMRC could carry out spot checks. Therefore businesses should keep evidence that any red diesel was put into vehicles or appliances before 1st April and that they have only been refilled with white diesel since that date.
HMRC can seize vehicles and machinery which are found to be illegally using red diesel. Businesses may also face fines and criminal sanctions if they are found to be intentionally breaking the rules.
Difficulties may arise where a vehicle is used for both ‘allowed’ and ‘non allowed’ purposes. In these cases, it may be easier for operators to just permanently use white diesel, even when a vehicle is performing an ‘allowed’ operation. If a firm has a number of vehicles in its fleet, it would make sense to allocate some to specifically run on red diesel and carry out ‘allowed’ operations, while the remainder run on white diesel and carry out ‘non allowed’ operations.
Alternatively, if white diesel isn’t used for all purposes, businesses will need to flush out tanks thoroughly to remove all traces of red diesel before switching uses. This is a particular issue for hire companies which may hire out machinery and vehicles which are used in, for example, both agriculture and construction.
When switching between red and white diesel, the documentation you keep should includes:
- When the vehicle was filled with red diesel
- When it was flushed out
- When it was refilled with white diesel
- Evidence that it has previously been used for allowed purposes (eg invoices from agricultural work)
It is not possible to just use red diesel all the time and pay back the tax when doing non-agricultural work.
Due to the much higher cost of white diesel and its widespread use, it is likely to become a target for thieves and will need to be stored more securely than red diesel, so many businesses will need to invest in improved storage tanks.
The switch to white diesel for many industries is likely to have a big financial cost, but the cost of not following the rules is potentially a lot higher. So it is essential that any companies which have previously used red diesel, and are now no long entitled to use it, make all the necessary changes and have the documentation to prove that their vehicles and machinery are operating legally.
