Red Diesel

Duty on Red Diesel for Propulsion Set to Rise by 2p / Litre From 1 December 2008

HMRC has confirmed that Duty on Red Diesel used for propulsion purposes will rise by 2p per litre as of 1 December 2008 in line with other fuel duty rises . Non propulsion fuel used for domestic heating purposes will rise by 0.38p per litre. This change will add about £1.42 to a 100 litre fill of diesel at a 60/40% split.

Red Diesel Update - HMRC Guidance on % Use Declarations

Red Diesel update

1 November 2008

HMRC accepted the overwhelming wish of both suppliers and users that red diesel should continue to be available to recreational boaters. 
The loss of the derogation will only affect fuel used for propulsion, which will be subject to the full rate of duty.
Red diesel at the rebated rate will continue to be available for domestic purposes, such as heating and lighting. 

How will it work?

1. When recreational boaters buy diesel for their craft, they will need to make a declaration to the supplier that they intend the fuel to be used for propelling a private pleasure craft.
   
   
2. The recreational boater will also declare what percentage of fuel they intend to use for propulsion (as opposed to domestic purposes such as heating and lighting).

How will the boater work out what percentage of fuel they intend to use for propulsion?

HMRC has understood our arguments about the potential difficulties for fuel suppliers in calculating duty and VAT – in particular for the smaller operators – when faced with customers claiming different percentages of fuel used for propulsion. HMRC also appreciates the concerns of users about the difficulty of calculating and apportioning their own intended usage accurately and their worries about unintentionally making an inaccurate declaration. However, the EU Energy Products Directive specifically refers to ‘fuel for the purposes of navigation’ (which is reflected in UK law as ‘fuel for propelling’), so there is no legal basis for imposing a single standard apportionment to be applied universally that pays no regard to actual usage for propulsion.

HMRC has therefore confirmed to the BMF, RYA, and IWA that their advice on this issue is as follows:

“Q. What will be the allowance for fuel used on boats for heating and lighting?

A.  There is no fixed allowance. It is for the purchaser to declare the percentage of fuel used for propulsion.  However, analysis by both the industry and HMRC suggests that a split of 60% for propulsion and 40% for domestic use (heating, cooking etc) probably reflects most people’s use and it is therefore likely that many users will declare such an apportionment.  This will make it easier for suppliers (RDCOs) to work out additional duty and VAT.  However, where a purchaser knows that their propulsion use may be more or less than the above apportionment split or a craft clearly has no domestic use, then they must declare their actual intended usage. 

Q. What about residential boat owners where nearly all fuel is for domestic purposes – what can they declare?

A. We have recognised the status of residential boat owners whose primary residence is their boat. Some of these will be at fixed moorings or move just a very short distance along the tow path from permanent moorings. If they live aboard the craft permanently and hold certain documentation, such as a Houseboat Licence, Residential Mooring Licence, Council Tax Bill in respect of the mooring, or other peripheral documentation, invoices or bills which provides proof of permanent residency, they may purchase all their fuel at the rebated rate (as if they were a commercial vessel). They will still be required to make and sign a declaration saying that 0% of the fuel is for propelling purposes.  It will be the responsibility of the declarant to ensure that they hold the requisite documentation should HMRC wish to check the validity of the declaration made in these circumstances. Continuous cruisers may not declare 0% under these arrangements, even if they reside permanently on their craft, they must declare their actual intended usage for propulsion.”

Registered Dealers in Controlled Oils (RDCO) will need to account to HMRC for the additional duty received from recreational boaters.  RCDOs already owe a general duty of care to ensure that they only make supplies of controlled oil for legitimate uses.

IWA welcomes continued use of red diesel for non-propulsion purposes

IWA News Release

IWA welcomes continued use of red diesel for non-propulsion purposes

Release Date: 3 March 2008

The Inland Waterways Association has welcomed the announcement by Her Majesty’s Revenue and Customs (HMRC) that red diesel would be retained when the derogation on fuel duty is removed in November this year, and that the lower rate of duty would still be chargeable on fuel used for heating and domestic purposes .

In a policy statement issued by HMRC on Friday 29 February it was announced that:

“Private pleasure vessels will continue to be permitted to use marked fuel (red diesel) but at the rate for heavy oil, repaying the rebated duty via the Registered Dealers in Controlled Oils (RDCOs) who will declare this to HMRC. An allowance for domestic use will be permitted.”

HMRC’s decision means that red diesel will be retained, at two different rates of duty, a higher one for pleasure craft using it for propulsion purposes, and a lower rate for commercial purposes. Pleasure boaters should therefore anticipate an increase in duty of around 47.25 pence per litre extra from November when they fill up with diesel used for propulsion purposes.

Despite the large increase in duty to be paid, which was expected, there is some good news. IWA’s lobbying to achieve a continued allowance for the use of low rate red diesel for heating or other domestic purposes (other than propulsion) has been accepted by HMRC. Boaters may therefore continue to use red diesel purchased at the lower commercial rates of duty for “domestic” purposes, e.g. heating and battery charging even though it may go into the same tank as the fuel used for propulsion.

This decision by HMRC means that boaters will now self certify at the point of purchase what proportion of the fuel purchased is for domestic purposes, and the vendor will charge and account for the duty due on the transaction accordingly. Vendors will have to keep accurate records, in order to declare the duty to HMRC.

HMRC maintain that vendors “will not be required to verify the validity of declarations made to them by users; they need only retain the declaration in their records to support their own duty return to HMRC”.

HMRC also state that they will be holding further consultations on the exact details of the certification process with stakeholders.

Speaking on behalf of IWA, John Baylis, deputy chairman of IWA’s navigation committee said:

“IWA is pleased to see red diesel retained, as its removal would have a had a serious consequence on the availability and viability of waterside refuelling businesses, and a knock on effect on the availability of fuel for boaters.”

“Despite the anticipated increase in duty, IWA additionally welcomes HMRC’s recognition of IWA’s argument for the retention of rebated fuel for heating and other domestic purposes (other than propulsion). This will go some way to ameliorating the impact of the cost increases and ensure that boat owners are only required to pay additional tax on diesel used for propulsion purposes rather than heating and battery charging.”

“I would like to personally thank all of the many members of IWA who took the time and trouble to write to HMRC in support of our position on retaining the rebate for fuel used for domestic purposes. Yet again IWA members’ persistence in lobbying government on a matter of policy has paid off.”
 
He concluded:

“IWA looks forward to the ongoing consultation with HMRC on implementation details and hopes to ensure that the self certification process is as least  complicated and onerous as possible for boaters and vendors.”

Red Diesel HM Revenue Consultation

HM Revenue and Customs published its consultation paper about red diesel on 1st August.  Following representations by IWA, British Marine Federation, Royal Yachting Association and the Federation of Petroleum Suppliers, one option put forward is to allow the continued use of red diesel, although at a higher rate of duty, saving the significant cost of fuel infrastructure and equipment aboard boats.  This option is also preferred by H M Customs & Revenue.  The consultation, which also includes other options currently not preferred by Government, is open to all members of the public – and IWA is encouraging individual boaters to make their own submission, as well as the corporate submission that IWA intends to put forward. 

A key issue that IWA intends to address in its response is that tax should not be payable for diesel used for heating and electricity generation.  At the moment, with many boaters’ lack of flexibility to fit extra fuel tanks through space constraints, all will be forced to pay full tax on all fuel used for those purposes.  In IWA’s negotiations, it argued that for many non-residential boaters, the split of fuel usage for driving the boat was around 75% and that the remaining 25% was used for charging batteries/providing 240 power and for space heating.  IWA proposed that at purchase, boaters could sign a declaration to that effect and receive an immediate 25% tax rebate in the price they paid at the pump.  If a good number of individuals are prepared to write and make this point, there is a chance of persuading H M Customs and Revenue that this is a simpler and effective way of solving the issue whilst fully meeting European Union rules.

Further details are in the ‘Current Consultations’ section below or available from Vicky Clark at Head Office.

Latest Position - January 2007

The European Commission has rejected the UK government’s application to continue to derogation that allows red diesel to be used in private pleasure craft in UK inland and coastal waters.  H M Treasury has expressed its considerable disappointment at the ruling and the Financial Secretary to the Treasury, John Healey MP, spoke and wrote directly to the Commissioner responsible to press the UK case.  Unfortunately there is no scope in European law to appeal against the decision, and H M Treasury advises that it therefore has to be accepted. 

Technically the derogation ended on 31st December, but UK Government has made clear to the European Commission that it was simply not possible to introduce new arrangements from 1st January and has emphasised the need for flexibility in implementing the changes to the European Union Commissioner for Taxation and Customs Union.  H M Treasury has promised a consultation in the New Year, and for the moment boat owners may continue to use red diesel in their vessels.

IWA is anxious that the decision should be implemented in the least harmful way, and has asked for a meeting with H M Customs & Revenue to discuss implications and the transitional arrangements and so as to minimise the impacts, and has already raised the following points:

* Exactly what boats will and will not be affected;

* The possibility of exemptions for those that use most of their fuel for heating, eg static residential boats;

* Working boats that nominally carry freight, especially where they swap between being commercial and recreational;

*  Hotel boats and hire boats be treated, whether or not they have passengers on board, ferries used on a commercial transport basis, and boats providing passenger trips;

* Whether the EU minimum tax level on diesel can this be applied current uses of 'red diesel' affected by the ruling.  IWA sees no reason why the UK's high road fuel duty should be charged to recreational boats and has urged the UK government to charge only the minimum duty for boats;

* How would work boats be treated, including those used by navigation authorities, commercial operators, and charitable bodies;

* When will the new regulations take effect;

* The possibility for revenue earned from taxation on sales of fuel to waterway users to be ring-fenced and granted back to navigation authorities to spend on improving the waterways;

* As the stain from red diesel will last many years in existing fuel tanks, how H M Revenue and Customs intend to police that the correct fuel is being used.

IWA is also working closely with British Marine Federation (many of whose members are diesel retailers), the Association of Petroleum Suppliers and other waterways groups to try to ensure the least damaging and disruptive arrangements for waterway users.

Double Whammy on Boaters - 8th December 2006

The Inland Waterways Association (IWA) today expressed disappointment that the European Commission has rejected the UK Government’s application to renew the UK’s derogation on red diesel for private recreational boaters.....

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