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Red diesel changes – another thing to watch out for

Author: David Missen

Published: 28 Apr 2021

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One of the announcements which were made on “Tax Day” concerned the outcome of the governments consultation on the use of red diesel in, principally, the construction and extraction industries. This followed on from proposals made in the 2020 budget to withdraw the availability of low duty fuel from these sectors in the interests of reducing air pollution (though, thankfully, mainstream agriculture will remain unaffected).

The industry response to the consultation was included within the ”Tax Day” releases. The changes to the red diesel regime will proceed, broadly as planned, despite responses pointing out:

  • The current lack of alternatives to diesel machinery, and unrealistic timescale for change
  • The fact that most businesses would simply switch to white diesel (so paying more tax, but not reducing their emissions at all
  • Other businesses might simply switch production abroad, thus not only maintaining harmful emissions at current levels but also depriving the UK of the tax and employment revenues which are generated (and possibly creating even greater pollution when the quarried materials are then moved back to the UK)

Regulations will be introduced in Finance Bill 2021 to implement the changes, and from April 2022 fuel dealers will need to to flush out any tanks where storage will switch from red to white diesel. The rules for those commercial users affected by the new rules are marginally less strict, but they will be expected to run down stocks, make the switch on 1 April 2022 and maintain records to monitor the transition. The question of contamination has been considered and the proposals state: “In its enforcement function, HMRC officers will consider the type of machinery and the frequency of use in deciding whether detected traces are at a level consistent with compliance”.

Whilst most farming businesses will feel little impact from these changes, it will cause significant difficulties for those whose diversifications include construction or quarrying, where new tanks may be required. The proposals do not deal with the position where machinery is used for both eligible and ineligible purposes but one assumes that the white diesel requirement will be predominant.

From an audit and AML perspective, accountants will need to be aware of the new rules and the implications of non-compliance, which could be severe.

*The views expressed are the author’s and not ICAEW’s.