The Red Diesel ban is a controversial but quiet subject in the UK at the moment. With Ukraine being invaded by the Russian Military, the media hasn’t shone much light on the situation with Red Diesel and the changes to taxation coming at the end of March 2022 for good reason.
In 2019, we wrote an article about whether Brexit would kill the construction industry, we can tell you now that it didn’t. In fact, construction is thriving at the moment post-covid. The new Red Diesel measures however may tell a different story.
In 2019, the UK government set out a plan to reduce carbon emissions across the country, with a goal to become completely carbon neutral by 2050. At the time, the UK was a trailblazer among other countries by setting one of the most ambitious carbon neutral objectives the world had seen. Being carbon neutral means that the amount of carbon that a country produces is equal to the quantity of carbon that it removes from the atmosphere.
With the construction industry still recovering from the rising cost of materials and the massive labour shortage, this Red Diesel legislation change could mean disaster for many firms across the country.
What are the rules right now?
As of writing this article in March 2022, the laws currently are not as restrictive on Red Diesel.
The Government’s current rules on Red Diesel are:
“Some oils and fuels are taxed at a lower (rebated) rate because they are not intended to be used in road vehicles. They include:
- gas oil, usually marked and dyed, also called red diesel
- kerosene, including aviation turbine fuel (avtur)
It’s illegal to use rebated oils as fuel in a road vehicle unless you get a licence from us to pay the difference between the full rate of fuel duty and the rebated rate actually paid on the rebated fuel used. Section 7 explains the circumstances in which we’ll allow this and how you can apply.”
What is red diesel and why is it so harmful to the environment?
Red diesel is fundamentally the same as “white diesel” which is regular diesel that comes from petrol stations across the UK. The red part of the diesel comes from a dye called Solvent Red 26 or 164. When used in vehicles, the exhaust will emit red-dyed fumes which will alert authorities that the diesel has not been subject to the same tax that is required to operate on the road. When used in road vehicles, diesel is subject to a duty of almost 58 pence per litre (ppl), which the government says reflects its “harmful impact”.
However, the same fuel with the red dye is taxed at a far lower rate of 11ppl. Therefore, it is given a red colouring so that HMRC and other relevant authorities can track it and crackdown on misuse. Now ministers want to further restrict the legal use of rebated diesel.
Red diesel isn’t specifically more harmful or dangerous to use than regular diesel but the lower price incentivises the use of diesel for companies on private land rather than using more environmentally friendly options.
Changes to Red Diesel Legislation
The “red diesel ban” comes into effect from the 1st of April 2022. The changes to legislation mean that it will be illegal to put red diesel into vehicles or machinery fuel tanks in the UK. However, the ban doesn’t completely restrict the use of red diesel as there are some dispensations and exemptions for the use of the fuel, however, these circumstances are very limited.
Why is this happening?
The UK Government has stated that this is a step towards their carbon-neutral plan. The Finance Bill 2021 has helped the Government to introduce the “red diesel ban” in order to help meet climate change and air quality policy objectives. Red diesel accounts for the production of almost 14m tonnes of carbon dioxide a year while its use in construction alone caused 7 per cent of nitrogen oxide emissions in London in 2018. Although red diesel doesn’t contribute to pollution more than regular white diesel, Government ministers hope that it will help to push companies towards cleaner alternatives.
What uses will still be allowed?
There has been a list produced that states the accepted industries and uses for red diesel. Sectors that can continue to utilise red diesel include forestry, agriculture, fish farming and horticulture. Some heat and power generation will be allowed as well as refuelling of some boats and track-based vehicles. Travelling fairs and amateur sports clubs will also receive special dispensation.
This makes an interesting point as it states that some tracked vehicles will be included in the exclusion from the ban. This could mean that excavators and other tracked plant machines are still allowed to use red diesel.
This raises the question of why the construction industry is so panicked about this change.
Are there any loopholes for contractors?
All legislation has confusing and intricate details that aren’t clear to the average reader. The Construction Products Association (CPA) pushed the government on this and was told by HM Revenue & Customs (HMRC) that accepted uses of red diesel after 1 April “very clearly do not cover construction”.
This is disappointing for construction workers, employers and company owners.
Essentially, there is no way around this unless you can blur the lines between what your company does. This would mean somehow convincing HMRC that your construction company is in the: Agriculture, forestry, horticulture, fish farming or Rail (including passenger and freight) industries or Powering non-commercial heating systems (e.g. homes, narrowboats and religious buildings).
These are fairly airtight rules on red diesel and it doesn’t look like there is any way around it other than the one we’ve talked about above. Despite this, the government has stated that Red Diesel can be used to power vehicles such as excavators, perhaps someone will find a loophole in the near future.
Can I fill everything up with red diesel on 31 March?
If you have a vehicle with red diesel in, you will be allowed to continue operating the machine until it runs out. At this point, it is illegal from the 1st of April to pour red diesel into any vehicles other than ones within the exclusions.
This means any stores of red diesel should be put into plant by the end of March or emptied of the rebated material, which must be disposed of legally and responsibly. Build UK says traces of red diesel will be accepted in storage tanks but that fuel tanks must be flushed of the cheaper substance if a machine is switched from accepted to unaccepted use.
What does all this mean for hired plant?
Build UK suggests that contractors check all vehicles and machinery that they hire to establish whether it is using red or white diesel. If the machine is found to be using red diesel, the contractor should seek to establish when the red diesel was added to the machine.
The contractor must flush the red diesel from the fuel tank to refill it with white diesel to ensure that there aren’t traces that can be detected by authorities.
What is the punishment for illegal use of red diesel?
HMRC promised a pragmatic enforcement approach, but they are clearly motivated to crack down on unjustified use of rebated fuel. HMRC has the powers to levy a penalty equal to the duty avoided, issue fines of up to £250 and ultimately seize the offending piece of machinery, which could be by far the biggest hit for contractors.
What evidence should be kept in case of an investigation?
You should make sure that you keep any fuel receipts and invoices relating to the fuel that you use on-site. It may also be key to keep any invoices for flushing of fuel tanks as well as your records of disposing of red diesel.
To ensure that no evidence is found by investigators, flush out the fuel tanks thoroughly as red diesel will dye the inside of your fuel tank.
Hydrotreated Vegetable Oil is an alternative that many construction companies across the UK are adopting. Laing O’rourke is aiming to replace red and white diesel with HVO oil in all plant machinery by the end of March 2022. This will reduce emissions from plant machinery by up to 90% which will help to bring the company to net-zero carbon emissions by 2030.
Biodiesel is subject to the same taxation as red diesel and therefore falls under the red diesel ban. This is to be reviewed under the next budget changes.
What should I do now?
Staff should instantly be made aware of the “red diesel ban” to ensure that they do not unknowingly violate the law. Red diesel should not be purchased if you don’t think that you will use it before the 31st of March as you will incur unnecessary costs for safe disposal. In the meantime, you should fill all vehicles that are currently under “accepted use” to reduce your Red Diesel supplies in the cheapest legal manner possible.
Finally, consider changing to an alternative fuel source that is more environmentally friendly and cheaper.