The End of Rebated Diesel – Cost Potential

28 February 2022

From 1st April 2022, many sectors will lose their entitlement to use ‘red’ diesel and rebated biodiesel across a variety of applications – and construction is one of the industries that is most affected. 

Equipment on hire that requires diesel fuel, if returned to depot after the 1st of April 2022 with rebated fuel; and that fuel is was not provided with the hire, then this may be subject to a charge.

When replenishing fuel used in hire (where equipment has been supplied with fuel and that fuel has been expended) – that fuel will be replenished at the non rebated cost plus the required duty.

Using the wrong coloured fuel could be expensive

With Red Diesel, we are not talking about a colour here; we are talking about taxation. And whilst the world needs immediate action to stave off the filthy hangover of capitalism and industrialisation, such action comes with expense. 

It comes to light as part of the UK governments continued commitment to reduce its part in rising global warming levels and achieve net-zero carbon emissions by 2050. Research from a recent government report states that the ‘use of red diesel accounts for around 15 per cent of all the diesel used in the UK and contributes to nearly 14 million tonnes of carbon dioxide a year’ so whilst this change is great news for the environment, many construction workers have been left wondering how they will be affected by this new law, and how they should act in order to comply with the new rules.

How the industry will need to comply?

This major change will impact many businesses across the UK, primarily those in the agriculture, construction, and waste industry. Meaning that hired in equipment will need strict management in terms of the fuel used, with the potential for fines if hirers have used illegal fuel.

The government has released clear guidelines that specifies who can still use red diesel and in which applications. But one of the main changes for the construction industry is the fact that heavy plant and equipment will no longer be able to run on red diesel when used for construction purposes.

Note that this does include non-road mobile machinery for example excavators, dumpers and cranes.

The new law will also mean that the construction industry cannot use red diesel to run commercial heating and power generation, for example when using mobile generators on construction sites.

The HMRC have said that they will be offering guidance and highlight the importance of record-keeping as a means of evidence for compliance. For example, keeping invoices and receipts that show the dates of red diesel purchased prior to the deadline date, and records of white diesel purchases from the deadline onwards will suffice.

Primary equipment where red diesel is used:

  • Excavators
  • Rollers
  • Generators
  • Waste Separation Machines
  • Diesel Heaters
  • Mobile Self Container Tower Lights

What to do with existing red diesel?

You may be wondering; do I need to empty out all of my red diesel right now?

The answer is no.

In order to be compliant with the new guidance, you must run down your existing stocks of red diesel before the deadline – 1st April 2022. Realistically, there will still be some traces left and you don’t have to go flushing your tanks, however you do need to prove that you haven’t purchased any red diesel after the deadline (or even stocked up prior to this date).

The rules state:

From 1st April 2022 you must not put rebated fuel into the tank of a vehicle, vessel,
machine, or appliance that is not allowed to use it. If you are no longer able to use rebated
fuel, you should plan to run down the fuel in your vehicles, machines, or appliances to as
close to nil as reasonably practicable before 1st April 2022.

You may use rebated fuel as fuel other than for an excepted machine after 1st April 2022 if:

  • it was taken into the vehicle, vessel, machine, or appliance legally in the UK before 1st April
    2022 (i.e., the vehicle, vessel, machine or appliance and the purpose it continues to be used
    for means it was allowed to use rebated fuel before the rules changed); and
  • no rebated fuel has been taken into the vehicle, vessel, machine, or appliance on or after
    1st April 2022

How will the change affect business?

Unfortunately for many construction companies across the UK, this change will mean a surge in their running costs. Red diesel, which is dyed white diesel, so it is easily identifiable, is taxed at a much lower rate. The fuel duty for red diesel is 46.81 pence per litre, far less than standard white diesel which is taxed at a full rate of 57.95 pence per litre. This means that companies who have to switch from red diesel to white diesel next year will have to pay five times as much fuel duty than they did previously.

Put into pounds and bought in bulk, this value adds up quickly and will start to eat in to profit margins quite drastically. Many construction firms will have to find new, more efficient ways to ensure that these costs do not directly affect their bottom line.

Hired in Equipment Provided by PAL Hire

Equipment on hire that requires diesel fuel, if returned to depot after the 1st of April 2022 with rebated fuel; and that fuel is was not provided with the hire, then this may be subject to a charge.

When replenishing fuel used in hire (where equipment has been supplied with fuel and that fuel has been expended – that fuel will be replenished at the non rebated cost plus the required duty. Where possible this will be communicated clearly at the time of hiring equipment. Many of our suppliers are charging duty from the 1st of March 2022 – especially where they are using white non rebated fuel.

This also means that a close monitor is being given to the use of fuel which is returned.

And whilst the HMRC have confirmed that end-users who switch from Red Diesel to White Diesel are not required to flush out their tanks, however customers are advised to run stocks to as close as zero (or as low as is practically possible) by 31st March 2022, in order to achieve a relatively clean switch over from Red to White. Equipment returning to depots will need be returned with the appropriate fuel.

Any confusion or the incorrect type of fuel returned with equipment, may also be subject to a surcharge.

For more information on hiring diesel equipment and fuel duty – call 0161 482 6255 and speak to our team.