What is red diesel?
Red diesel is another name for rebated diesel. It differs from standard diesel (white diesel) in the fact that it is taxed at a much lower rate (both fuel duty and VAT).
Use of red diesel is restricted to certain businesses and business usage which is defined by the government.
It is known as red diesel because it is dyed red so that it is easily distinguishable given the fact it is sold at much lower prices due to the lower tax rate. Dying the diesel red enables HMRC to check if it is being used illegally.
Who can and can’t use red diesel from April 2022?
New rules relating to who can and can’t use red diesel were introduced on 1st April. The new rules have been introduced by the government to help meet climate change and air quality targets.
From the 1st April only the following uses of rebated fuels will be allowed:
- in vehicles, machines, and appliances for accepted uses in the agriculture, horticulture, fish farming and forestry sectors
- to propel and stop a vehicle designed to run on a railway
- for electricity generation and heating for premises that are not used for commercial purposes.
- in agriculture vehicles and unlicensed vehicles kept and used on land maintained by a club that is registered with HMRC as a community amateur sports club, golf club or driving range
- in all types of boat, except for private pleasure craft in Northern Ireland
- for powering machinery used in travelling circuses and fairs
You can find the full details of when rebated fuel can be used and the vehicles and vessels that can use rebated fuels for accepted use on the gov.uk site.
Construction is one of the biggest industries which is no longer allowed to make use of red diesel alongside other commercial industries. Those who are no longer permitted to make use of red diesel will instead need to use standard ‘white diesel’ and pay the full fuel duty or make the switch to alternative fuels.
What are the penalties for using red diesel if you are not legally allowed to?
Ahead of the changes introduced on the 1st April, HMRC issued advice to businesses who would be impacted by the changes. This included running down stocks of red diesel.
After the 1st April 2022, those no longer legally allowed to use red diesel must only use diesel or biofuels which have had full duty paid.
HMRC have confirmed that they will be carrying out checks to ensure that businesses who are no longer permitted to use red diesel do not continue to do so.
The following penalties could be put in place if you are found to be using red diesel when you are not legally allowed to:
- Vehicles, vessels, machines, or appliances found running on rebated fuel that HMRC establishes was put into the tank after 1 April 2022, will be liable to be seized unless a licence has been granted and the duty paid.
- you may be subject to civil or criminal sanctions if HMRC have evidence or reason to believe you have put rebated fuel into your vehicle, vessel, machine or appliance intentionally or recklessly after the rules changed,
What implications could these changes have?
Implications of this change to red diesel could be wide ranging for businesses affected by them.
Increased business costs
This BBC article examines the fact that many businesses will face increased operating costs due to having to pay the full rate of fuel duty on standard diesel. Especially given the fact that fuel prices are already at an all-time high.
Some businesses are concerned that they may not be able to cope with the increased costs and are questioning the viability of their business in the face of the changes.
Risk of theft
With fuel prices at a high, coupled with cost-of-living pressures there is the increased risk of theft. If your business is having to switch to white diesel bear in mind that this can’t be so easily traced so may be more attractive to thieves. Having the right surveillance and technology in place will help you to keep track of your fuel and alert you to any potential cases of theft.
Insurance Implications
Given these changes to red diesel usage eligibility and high fuel prices we are likely to see an uptick in criminals targeting fuel. And with increased cost pressures generally, there is likely to be an increase in the risk of theft of other attractive items which your business may own.
With this heightened risk of theft, your business may want to consider insuring your fuel. You will also need to be aware of the potential risk of employee theft from within your business. Protecting your business from any losses as a result of criminal activity will become a focus.
At Anthony Jones we appreciate that this is a difficult time for many businesses facing increased operating costs. We are here to help you get the right insurance at the best possible price – hopefully giving you one less thing to worry about. Contact us on 020 8290 9099 or email us at commercial.motor@anthonyjones.com if you are looking to arrange commercial vehicle insurance.
