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Permitted use of Red Diesel?


MarkH2159

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Apologies if this is actualy covered in some way elsewhere in the forum but I believe my case me be somewhat different.

I have recently done some work for a 'friend' who has declared himself to be somewhat cash strapped and so, knowing I am in the process of acquiring a narrowboat, he has offered to pay me in agricultural Red Diesel of which he has copious amounts in storage. 

 

I am aware of the usual 60/40 general rule that is applied when purchasing fuel for canal boats.

I believe this is somewhat discriminatory for those of us who may be 'tied to the bank' long term and only have one fuel tank for heating and propulsion, also for boats that have diesel stoves etc running from the same tank as propulsion diesel when not actually cruising.

 

I have also seen some criminal prices in marinas recently with one offering red diesel at £0.89 for heating and £1.23 for propulsion - I can get fully taxed 'road' diesel for my car cheaper than that.

 

I have been in the refined fuel business for over 40 years and am aware of the way diesel is marked for road use or otherwise. It is quite obvious that there is absolutely no difference between boat propulsion and heating red diesel which comes out of the same storage tank/hose and goes into the same tank on the boat.

 

Anyway, before I accept his offer of payment in several hundred litres of red diesel I need to know if I can actually use it in my boat without getting caught up in some legal wrangle with the team working for Her Majesty.

The logistics are not really an issue - van, mobile tank, drums, pump etc.

 

Cheers, MH

 

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6 minutes ago, MarkH2159 said:

Anyway, before I accept his offer of payment in several hundred litres of red diesel I need to know if I can actually use it in my boat without getting caught up in some legal wrangle with the team working for Her Majesty.

The logistics are not really an issue - van, mobile tank, drums, pump etc.

 

 

Legally you can only use it if you pay the duty on it.

The chance of getting caught is 'slight' but do you want to risk a criminal record for the sake of a few pennies ?

 

Agricultural diesel does not have the same levels of duty - I currently pay under 50 per litre for mine. (for use in my tractors and digger)

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You cannot use this fuel in a propulsion engine, even if you are permanently moored. But you can use it in a tank which only supplies non-propulsion uses e.g. generator or diesel fired heating.

 

The 60/40 rule is not a fixed percentage. You can legally declare different proportions if your expected use is different from a typical boater, but not all fuel suppliers will accept your declaration, so check first.

 

And the rules are due to change - government consulted on possible changes last year.

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4 minutes ago, David Mack said:

You cannot use this fuel in a propulsion engine, even if you are permanently moored. But you can use it in a tank which only supplies non-propulsion uses e.g. generator or diesel fired heating.

 

The 60/40 rule is not a fixed percentage. You can legally declare different proportions if your expected use is different from a typical boater, but not all fuel suppliers will accept your declaration, so check first.

 

And the rules are due to change - government consulted on possible changes last year.

Well clearly he can as it's exactly the same fuel he can buy at the marina. Whether it's legal or not is maybe more complex....

 

If your saying because he's not bought it from a supplier and made a declaration he shouldn't use it for propulsion then fair enough. At the moment I'd say my use was 100% domestic anyway

Edited by jonathanA
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16 minutes ago, Alan de Enfield said:

 

 

Legally you can only use it if you pay the duty on it.

The chance of getting caught is 'slight' but do you want to risk a criminal record for the sake of a few pennies ?

 

Agricultural diesel does not have the same levels of duty - I currently pay under 50 per litre for mine. (for use in my tractors and digger)

I am aware of all the levels of duty but how would one actually go about 'paying' the extra duty on it?

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3 minutes ago, MarkH2159 said:

I am aware of all the levels of duty but how would one actually go about 'paying' the extra duty on it?

 

I don't know, but as a guess you need to contact HMRC and make a voluntary payment of the difference paid and the difference due.

 

From 2022 you cannot use any form of "Red diesel" unless you have separate tanks for domestic and propulsion use.

 

Budget 2020 changes to the tax treatment of red diesel

 

3.13 At Budget 2020, the government announced that it would remove the entitlement to use red diesel from April 2022, except for agriculture (as well as forestry, horticulture and pisciculture), rail and for non-commercial heating (including domestic heating).

 

3.14 This means that from April 2022, all businesses that have lost their entitlement to use red diesel will need to use white diesel instead or switch to cleaner alternatives. More information is provided in Chapter 5 on how these changes will be implemented. Organisations and individuals using white diesel will need to pay the standard 20% VAT rate, instead of the reduced 5% rate of VAT that red diesel supplies of up to 2,300 litres are subject to. VAT-registered businesses will be able to reclaim the VAT paid on the fuel purchased for use in their businesses.

 

3.15 The government does not propose changing any of the existing fuel duty reliefs which give specific sectors 100% relief on their fuel duty costs, even where these relate to the use of fuel by sectors which will no longer be entitled to use red diesel. Commercial boats undertaking journeys within the limits of a port or at sea, including ferries and fishing boats, will therefore remain entitled to the Marine Voyages Relief, whilst the General Lighthouse Authorities and the Royal National Lifeboat Institution will continue to benefit from full relief from fuel duty, even when they switch to using white diesel from 1 April 2022. They will, however, need to pay the standard 20% VAT rate that applies to white diesel.

 

3.16 To ensure that businesses using red diesel to generate electricity for supply through a licensed supplier can continue to reclaim the fuel duty, less any carbon price support payment due, once they have to use white diesel, the government proposes to amend the qualifying fuel definition accordingly. 

 

3.17 The government also proposes that in remote areas benefitting from the rural fuel relief, the 5ppl discount will apply to all sales of white diesel, regardless of use.

 

3.18 The government recognises that these changes to the tax treatment of red diesel may affect some public sector bodies, such as local councils and the military, and will therefore engage with them closely as part of this consultation. While the changes are also designed to incentivise greater energy efficiency and the switch to more environmentally friendly alternatives in the public sector, the Treasury will discuss any spending pressures that arise in the public sector as part of the Comprehensive Spending Review scheduled for later this year. As set out in the policy costing document published alongside Budget 2020, the red diesel costing accounts for an increase in the overall resource spending envelope of £150 million per annum to account for the fact that part of the costs of the policy will fall upon the public sector. Budget changes to the tax treatme

 

 

Introduction of changes

5.2 The government proposes to prohibit the use of red diesel in sectors that will lose their entitlement from 1 April 2022. The fuel used in breach of this prohibition will be liable for forfeiture, penalties and an offence may have been committed.

 

5.3 All rebated fuels, including red diesel, are supplied to users through a controlled supply chain, where there is oversight of both wholesale and retail suppliers. HMRC approve suppliers under the Registered Dealers in Controlled Oil (RDCO) scheme before the RDCO can supply rebated fuels, unless they only supply fuel in small pre-packaged containers of 20 litres or less.

 

5.4 HMRC will only grant approval where the applicant is assessed as being a fit and proper person to supply controlled oil. Approved suppliers are required to take reasonable steps to make sure that their customer is properly entitled to receive the fuel they are supplying.

 

5.5 These RDCOs will therefore be required to ensure that they do not supply more red diesel fuel before 1 April 2022 to sectors losing their entitlement than the RDCO has reason to believe may be used up by that date.

 

5.6 The government would welcome views on whether there are users of red diesel that will have already purchased fuel now that they do not expect to have used up by April 2022. In particular, the government would welcome views on how frequently static electricity generators providing back-up power to buildings are refuelled.

 

Edited by Alan de Enfield
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Legally you're required to pay the duty on whatever percentage you expect to use for pleasure boating.

 

In certain cases it can be 0%: I declared at 0% for a small refill this year because we're not allowed to do "pleasure boating" under lockdown but I still need diesel to generate electricity and heat. But if you actually expect to go boating then technically you're avoiding tax unless you figure out how to declare it to HMRC

 

The diesel we use in our tanks is red in colour whether you declare some of it as taxable or not, but the government plans to change this soon, which might be another problem in having a big stack of red diesel lying around

Edited by enigmatic
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I have 250+ litres of red bought last year at 0% tax in my only tank as I fully expected to be spending time on my boat over winter and it's legal to run the heating from it at present.

However it looks like it will still be there when I go off cruising  in 2022 unless it gets nicked.

There will be many about in the same position.

 

 

 

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6 minutes ago, David Mack said:

You cannot use this fuel in a propulsion engine, even if you are permanently moored. But you can use it in a tank which only supplies non-propulsion uses e.g. generator or diesel fired heating.

 

The 60/40 rule is not a fixed percentage. You can legally declare different proportions if your expected use is different from a typical boater, but not all fuel suppliers will accept your declaration, so check first.

 

And the rules are due to change - government consulted on possible changes last year.

Therein lies the ambiguity...

"...cannot use this fuel in a propulsion engine...."  It would not be used in the 'engine' per se as the boat is not going anywhere.

 

I understand that a seperate tank makes things a whole lot more workable, but I will likely not have one.

However because of not cruising, my tank would only be used for diesel fired heating.

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Just now, MarkH2159 said:

Therein lies the ambiguity...

"...cannot use this fuel in a propulsion engine...."  It would not be used in the 'engine' per se as the boat is not going anywhere.

 

I understand that a seperate tank makes things a whole lot more workable, but I will likely not have one.

However because of not cruising, my tank would only be used for diesel fired heating.

If you're not cruising at all, your engine is not being used for propulsion and you have no tax obligation

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3 minutes ago, Alan de Enfield said:

 

I don't know, but as a guess you need to contact HMRC and make a voluntary payment of the difference paid and the difference due.

 

 

Oh yes, contacting HMRC is an excellent idea ????

Perhaps they would like to know more about the income tax that I have not paid since 1987, even if it is all legal and above board.

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There is or was a chap who brought red diesel to your boat in cans and filled your boat from them. As I understand it he charged the non-propulsion rate and I understand HMRC had confirmed this was legal.  I am sure there is a topic on here somewhere abut it/him.

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1 minute ago, Tony Brooks said:

There is or was a chap who brought red diesel to your boat in cans and filled your boat from them. As I understand it he charged the non-propulsion rate and I understand HMRC had confirmed this was legal.  I am sure there is a topic on here somewhere abut it/him.

Good info thanks @Tony Brooks

I know of a few 'farm based' moorings where the farmers do the same, making a few pence on a litre.

 

Technically I am owed about £300 at mates rates from this guy, but he has offered me up to 1000 litres of Red instead - not a bad price !!

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7 minutes ago, MarkH2159 said:

I understand that a seperate tank makes things a whole lot more workable, but I will likely not have one.

However because of not cruising, my tank would only be used for diesel fired heating.

 

From 1/4/22 if you only have one tank fitted then you are obliged to use 'white diesel'.

 

 

Private pleasure craft

 

5.30 Private pleasure craft users are currently entitled to use red diesel for both propulsion and non-propulsion use, but they have to pay white diesel rates for the fuel used for propulsion.

 

5.31 At Budget 2020, the government announced that it would include enabling legislation in Finance Bill 2020 to prohibit the use of red diesel to propel private pleasure craft, with details on the implementation of this power to be set out in due course. This will achieve consistency with a 2018 judgment by the Court of Justice of the European Union (CJEU) and ensure the UK meets its international obligations. It will not change private pleasure craft users’ entitlement to use red diesel for non-propulsion uses. The Bill is currently before Parliament.

 

5.32 Once the power is implemented, private pleasure craft users will need to use white diesel for propulsion instead of red diesel. This will not affect the fuel duty rate they pay on fuel used for propulsion since they are already paying the standard white diesel rate for this use of fuel.

 

5.33 However, implementing this judgment will create significant difficulties for some craft users and fuel suppliers according to the responses they provided 25 to the 2019 HMRC consultation on the use of diesel for propelling private pleasure craft. The government response to this consultation has also been published today, which includes a summary of responses.

 

5.34 The government is continuing to work with craft users and fuel suppliers to understand how they will implement the changes once they enter into force, taking account of the issues raised in last year’s consultation. It also needs to understand what impact the wider changes to red diesel entitlements may have on implementing this change for private pleasure craft.

 

5.35 Following discussions with craft users and fuel suppliers during the consultation, the government will decide when to remove the entitlement to use red diesel for propulsion, and will set out further details in due course.

 

5.36 Regardless of when private pleasure craft users need to start using white diesel for propulsion, they will remain entitled to use red diesel for nonpropulsion uses, such as for heating, and lighting and powering appliances such as fridges via a battery charged using red diesel (provided they have a separate fuel tank for this purpose). If they have only one fuel tank on board their craft, they will need to use white diesel.

 

5.37 As committed to at Budget 2020, the government has been exploring options to prevent users of private pleasure craft with only one fuel tank on board for propulsion and non-propulsion having to pay a higher rate of duty on their non-propulsion use of diesel than they currently pay.

 

5.38 The government is considering introducing a new relief scheme where approved fuel suppliers would be able to deduct from the sale price the duty difference on the proportion of white diesel intended for non-propulsion use. The fuel suppliers would then reclaim this deducted duty from HMRC and reflect this in the price charged to the private pleasure craft user at the point of sale.

 

5.39 Analysis by both the industry and HMRC previously suggested that a split of 60% for propulsion and 40% for non-propulsion use probably reflected most crafts’ typical fuel use. The government would welcome views on whether this apportionment remains typical, with supporting evidence.

 

5.40 The government would also welcome views on whether the relief should be a fixed percentage or whether it should be capped at a maximum percentage. A fixed percentage would mean a written declaration from craft users of how they use their fuel would not be required and it should make it slightly easier for fuel suppliers to work out the duty that needs to be deducted from the sale price and compile all the claims for HMRC. A relief capped at a maximum percentage would allow craft users to more accurately reflect the amount of diesel they intend to use for non-propulsion. This would necessitate a written declaration from the craft user to the fuel supplier on how they intended to use each tank of fuel (which would need to be made available to HMRC on request), although craft users could lodge a standing declaration with any supplier where they were a regular customer to save them making new declarations each time they refuelled.

 

5.41 The government would welcome views on the overall approach and whether fuel suppliers foresee any difficulties with implementing this scheme. If the 26 government decides to proceed with the introduction of this relief scheme, more guidance on how it will work will be set out in due course.

 

5.42 It is the government’s intention that people whose primary, or often their only, place of residence is their boat (which has a permanent mooring), will remain entitled to use red diesel. The government will set out what requirements these boat users need to provide to justify a continued use of red diesel, even if their craft has only one fuel tank.

 

5.43 The government believes that only a small proportion of private pleasure craft have a separate tank for non-propulsion use only. Given the small number of these craft, the government is minded to maintain their entitlement to use red diesel in the non-propulsion tank, but it will require them to use white diesel for propulsion use. If the government introduces the relief scheme set out above, these users will not be allowed to reclaim from their fuel supplier the duty differential between white and red diesel on the amount of red diesel used for non-propulsion, as this will already have benefited from the rebated rate of duty. However, if the relief scheme is introduced, those using white diesel in their non-propulsion tank will be able to reclaim the duty difference on the white diesel used for non-propulsion, as set out above.

 

5.44 Like for other end users of red diesel, the government does not propose to mandate that private pleasure craft users have to flush out their tanks to remove traces of red diesel when these changes come into force. However, it expects them to ensure that they do not purchase red diesel for use from the date that it is banned (except for a separate non-propulsion tank) and run down their existing stocks of red diesel before this date.

 

5.45 As set out above, HMRC will minimise non-compliance (such as overdeclaring the amounts of fuel used for non-propulsion) by exploiting the information that it holds to identify risks as they arise. For example, HMRC will be able to compare how much fuel suppliers reclaim in deducted duty with the current amount that private pleasure craft users pay to their fuel suppliers on the proportion of red diesel they intend to use for propulsion.

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14 minutes ago, Alan de Enfield said:

 

I don't know, but as a guess you need to contact HMRC and make a voluntary payment of the difference paid and the difference due.

 

From 2022 you cannot use any form of "Red diesel" unless you have separate tanks for domestic and propulsion use.

 

Budget 2020 changes to the tax treatment of red diesel

 

3.13 At Budget 2020, the government announced that it would remove the entitlement to use red diesel from April 2022, except for agriculture (as well as forestry, horticulture and pisciculture), rail and for non-commercial heating (including domestic heating).

 

3.14 This means that from April 2022, all businesses that have lost their entitlement to use red diesel will need to use white diesel instead or switch to cleaner alternatives. More information is provided in Chapter 5 on how these changes will be implemented. Organisations and individuals using white diesel will need to pay the standard 20% VAT rate, instead of the reduced 5% rate of VAT that red diesel supplies of up to 2,300 litres are subject to. VAT-registered businesses will be able to reclaim the VAT paid on the fuel purchased for use in their businesses.

 

3.15 The government does not propose changing any of the existing fuel duty reliefs which give specific sectors 100% relief on their fuel duty costs, even where these relate to the use of fuel by sectors which will no longer be entitled to use red diesel. Commercial boats undertaking journeys within the limits of a port or at sea, including ferries and fishing boats, will therefore remain entitled to the Marine Voyages Relief, whilst the General Lighthouse Authorities and the Royal National Lifeboat Institution will continue to benefit from full relief from fuel duty, even when they switch to using white diesel from 1 April 2022. They will, however, need to pay the standard 20% VAT rate that applies to white diesel.

 

3.16 To ensure that businesses using red diesel to generate electricity for supply through a licensed supplier can continue to reclaim the fuel duty, less any carbon price support payment due, once they have to use white diesel, the government proposes to amend the qualifying fuel definition accordingly. 

 

3.17 The government also proposes that in remote areas benefitting from the rural fuel relief, the 5ppl discount will apply to all sales of white diesel, regardless of use.

 

3.18 The government recognises that these changes to the tax treatment of red diesel may affect some public sector bodies, such as local councils and the military, and will therefore engage with them closely as part of this consultation. While the changes are also designed to incentivise greater energy efficiency and the switch to more environmentally friendly alternatives in the public sector, the Treasury will discuss any spending pressures that arise in the public sector as part of the Comprehensive Spending Review scheduled for later this year. As set out in the policy costing document published alongside Budget 2020, the red diesel costing accounts for an increase in the overall resource spending envelope of £150 million per annum to account for the fact that part of the costs of the policy will fall upon the public sector. Budget changes to the tax treatme

 

 

Introduction of changes

5.2 The government proposes to prohibit the use of red diesel in sectors that will lose their entitlement from 1 April 2022. The fuel used in breach of this prohibition will be liable for forfeiture, penalties and an offence may have been committed.

 

5.3 All rebated fuels, including red diesel, are supplied to users through a controlled supply chain, where there is oversight of both wholesale and retail suppliers. HMRC approve suppliers under the Registered Dealers in Controlled Oil (RDCO) scheme before the RDCO can supply rebated fuels, unless they only supply fuel in small pre-packaged containers of 20 litres or less.

 

5.4 HMRC will only grant approval where the applicant is assessed as being a fit and proper person to supply controlled oil. Approved suppliers are required to take reasonable steps to make sure that their customer is properly entitled to receive the fuel they are supplying.

 

5.5 These RDCOs will therefore be required to ensure that they do not supply more red diesel fuel before 1 April 2022 to sectors losing their entitlement than the RDCO has reason to believe may be used up by that date.

 

5.6 The government would welcome views on whether there are users of red diesel that will have already purchased fuel now that they do not expect to have used up by April 2022. In particular, the government would welcome views on how frequently static electricity generators providing back-up power to buildings are refuelled.

 

Last time I checked it was February 2021 so none of this applies...yet.

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2 minutes ago, Alan de Enfield said:

 

How astute of you.

 

With shutdown are you likely to use 1000 litres before 1/4/22 ?

Well between boat heating, decent sized generator etc, I will have a go, the rest might have to be 'given away' to friends.

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4 minutes ago, Alan de Enfield said:

 

From 1/4/22 if you only have one tank fitted then you are obliged to use 'white diesel'.

 

And is it not also the case that for some years, if you only have one tank, you have been obliged to buy fuel from a dealer approved by HMRC to sell red diesel for marine use, you have to declare the percentage to be used for propulsion (even if that is 0%), and the dealer has to account for the duty corresponding to your declaration. I very much doubt that the OP's farmer friend bought the fuel on this basis. 

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When they say "use", do they mean "buy and fill up with"? Most of us will have some red diesel left in our tanks in April next year; surely we won't be expected to syphon it out and throw it away?

 

As the O.P. is being given the fuel, it does seem unfair to expect him to pay duty on it. That's like saying that if you're given a box of chocolates, you aren't allowed to eat them.

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I am unsure on this.

I have legit red diesel in my single tank, I don't anticipate a seperate tank for the Ebby based on the amount it is used.

Because of various lockdowns I have virtually a full tank of Red in my boat.

The way things look I doubt it will get any use before April 2021.

Am I allowed to used up this red and top up with white as and when?

Is there a grace period for the red to be used up?

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26 minutes ago, MarkH2159 said:

Oh yes, contacting HMRC is an excellent idea ????

Perhaps they would like to know more about the income tax that I have not paid since 1987, even if it is all legal and above board.

If it's " legal and above board" what's the problem? 

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14 minutes ago, Ray T said:

I am unsure on this.

I have legit red diesel in my single tank, I don't anticipate a seperate tank for the Ebby based on the amount it is used.

Because of various lockdowns I have virtually a full tank of Red in my boat.

The way things look I doubt it will get any use before April 2021.

Am I allowed to used up this red and top up with white as and when?

Is there a grace period for the red to be used up?

 

As far as I recall, the principles were set out in last year's budget, there was consultation on proposals for the details last year, which were discussed on the forum at  the time, but I am not aware of any announcement yet as to what exactly the new rules will be. So the sorts of questions you are asking are as yet unanswered.

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34 minutes ago, Alan de Enfield said:

From 1/4/22 if you only have one tank fitted then you are obliged to use 'white diesel

My tank will still be full of red at this rate, do I pump it into the river and refill with white, if I can find any without using a Jerry can?

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