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Red diesel rule overhaul: Everything the transport and logistics industry needs to know about duty equalisation

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Red diesel duty equalisation changes, coming into effect from 1st April 2022, have not been heavily discussed in the haulage trade press. This might be unsurprising, considering that the road transport industry relies largely on white diesel, but if your business currently uses red diesel for any commercial applications, it’s time to get familiar with the new rules. Here, we share are a few key rule changes that Certas Energy customers in the transport industry will need to know and plan for over the coming weeks.

1. Red diesel can no longer be used to power commercial refrigeration units

As of 1st April 2022, red diesel will no longer be permitted for use in the large majority of commercial, profit-generating applications. As a result, hauliers will not be able to use red diesel to power fridge motors and will have to switch to an unrebated alternative. The closest equivalent, DERV, attracts a five times higher duty rate, which will lead to a significant increase in outgoings for fridge operators, in particular.

2. Red diesel cannot be used to power machinery in depots

Along the same lines, red diesel will no longer be permitted to power heavy machinery and plant equipment such as forklifts and cherry pickers when these are used for commercial purposes.
These are essential pieces of kit in the haulage industry, where they are used for transporting goods on and off vehicles and around depots. Again, non-rebated fuel, such as white diesel, would need to be used in place of red diesel, which could have a financial impact on haulage companies.

3. Red diesel cannot be used to provide heat or power at commercial locations

Red diesel has often been used as a low-cost source of heating and power generation at large, semi-exposed sites, including in the transport industry. However, this is now considered a ‘commercial’ use of the fuel and therefore will not be permitted from April 2022 and companies need to find an alternative heating solution. The only exception is in safety-critical or emergency circumstances, or for environmental protection. Even then, only red diesel that has been purchased before 10 June 2021 may be used for such purposes.

4. All businesses affected must prove their compliance

As in other industries, transport businesses that currently use red diesel for any purposes will have to be able to prove their compliance to HMRC, in order to avoid the risk of heavy fines or seizure of machinery. It will be essential to run down existing stocks of red diesel before 1st April 2022 but flushing out tanks to remove every trace of red diesel won’t be required. Surplus stocks in external tanks should be sold or given away to a permitted user or Registered Dealer in Controlled Oil (RDCO) or disposed of via an approved waste oil recycling or disposal company before the deadline.

Stocks of rebated fuel post-April 2022 can be run down if the fuel was obtained and stored on or before 10 June 2021, provided it is only used for contingency back-up electricity generation or critical safety and environmental protection applications. Affected businesses will need to be able to prove red diesel has not been purchased after the April 2022 deadline or stockpiled close to this date. Retaining purchasing and delivery documentation will help provide HMRC inspectors with a clear audit trail upon request. Finally, it’s worth having a plan for a timely and seamless transition to alternative fuel replacements to avoid interruption to operations.

5. Further changes could be on the horizon

The red diesel rule changes are likely to be followed with more regulatory measures as the government zeros-in on its carbon neutral goals. In anticipation, many users may look to migrate from diesel to cleaner-burning alternatives for powering machinery and heating applications. Fortunately, there are a variety of convenient drop-in solutions already available on the market, including cleaner-burning OEM approved drop-in fuel, GTL Fuel (Gas-to-Liquid), as well as FAME-free Hydrotreated Vegetable Oil (HVO), (dependent on usage, duty may still apply) in addition to cost-effective alternative heating solutions including industrial heating oil/Therma35 and kerosene.

Looking for personalised advice on how red diesel duty equalisation might affect your business? Certas Energy is here to help.

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