The Government has issued new guidance (11 November 2021) on the upcoming changes to the tax treatment of red diesel and other rebated fuels, and those who are entitled to use them. The changes form part of wider initiatives being implemented to help combat climate change and incentivise businesses to invest in and use cleaner alternatives.

Currently, red diesel is used throughout the construction and infrastructure building sectors and entitled businesses pay a much reduced amount per litre of red diesel compared to standard diesel for road use. From the 1 April 2022, the entitlement to use red diesel will be removed from most sectors, except for the agriculture sector (including forestry, horticulture and fish farming), in vehicles designed to run on railway tracks, and where red diesel is used to power non-commercial heating systems.

In brief,[1] businesses falling outside the above exceptions should be aware of, and comply with, the following from the 1 April 2022:

  • Prepare to use up any red diesel stocks by the 31 March 2022 and only order the amount you expect to use by then in the meantime.
  • Any surplus red diesel you have stored from 1 April 2022 should not be used to fill vehicles / machinery and you will need to sell and / or give it to someone entitled to use it, or to a Registered Dealer in Controlled Oil, or dispose of it via an approved disposal company. Only red diesel legally put into vehicles before 1 April 2022 can still be used and you may be asked to provide evidence of this where checks are carried out by HMRC.
  • For vehicles and machinery used for both allowed and non-allowed purposes, if continuing to use red diesel you will have to flush out the tank and remove all traces of red diesel between switching uses.
  • For power generation in non-commercial premises, you can use up stocks of red diesel where these were obtained on or before 10 June 2021.

Practical implications – businesses, particularly those across the construction and infrastructure sectors, need to be aware of the cost consequences of these changes and the impact they will have on cash flow and profit in new and ongoing works.

[1]               For full information please refer to the HMRC website.

Written by Sarah Wilson and Grace Watson

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