Will the construction sector see “red” or “green”?

Friday 1 April 2022 marked the end of fuel discounts for the construction industry in the UK. Charles Russell Speechlys Construction Team Partner David Savage discusses the new regulations and their likely impact on the industry

Discount fuel, also known as “red diesel”, was used in off-road vehicles and machinery, especially in construction and agriculture. Users are entitled to a rebate on the tax or duty paid on fuel purchased. “Red” diesel is exactly the same fuel as regular “white” diesel, but a red dye has been added to it to prevent its misuse in regular road vehicles.

From April 1, contractors must ensure that the plant and equipment they use on site is always filled with the correct fuel – and, if that fuel is diesel, it must be diesel White. HMRC has made it clear that it expects the affected tanks to be flushed to remove any traces of red diesel when changing from permitted to unauthorized use. In terms of responsibility for making these changes:

Factory owners should seek confirmation whether their facilities and equipment are to be used for permitted purposes or not, with construction work from April 1, 2022 obviously being an unauthorized purpose.

Rental companies should inform their customers that the fuel they are permitted to use will be determined by the use of the machine or vehicle being rented (as some uses still allow discounted fuel, etc.). If in doubt, supply the installation or the vehicle with white diesel.

Contractors are directly responsible for filling their vehicles, facilities and equipment with the correct fuel, which in the case of diesel must always be white diesel.

Suppliers who are registered resellers of controlled oil are responsible for notifying their customers of the rule changes and must also ensure that their customers have not purchased red diesel in quantities for storage prior to the rule change. does not come into force, etc.

‘White’ diesel for road cars is taxed at 57.95p per litre, while red diesel was – until April 1 – a rebate of 46.81p per litre. This means that the effective duty rate for red diesel is only 11.14 pence per litre, around 47 pence per liter cheaper than white diesel. This was a reduction in the diesel tax rate of over 80%.

Encourage adoption of greener alternative technologies

The government’s position on this change is driven by a desire to ensure equity between different users of diesel fuels, the encouragement of the development and adoption of alternative greener technologies, and additional “green” dividends in seeing fuel users improve the fuel efficiency of their vehicles. , plant and machinery.

From 1 April 2022, where refunded fuel is used in a vehicle or machine which is not entitled to use it, HMRC is entitled to seize the vehicle or machine and may impose a fine of 250 £. They can also apply a penalty of up to 100% of the duty that was evaded.

Practical advice to construction companies around these changes would be to ensure that receipts or invoices for fuel purchase, lease or plant contracts, and timesheets for drivers and operators are all retained so that full evidence is available to HMRC – should it be required – to prove use of the correct fuel after 1 April 2022. There is an exemption which allows businesses to use refunded fuel held in the storage tanks for the purpose of emergency backup power generation.

The government had announced the phasing out of red diesel in the 2020 budget, and no doubt the construction (and agriculture) industries appreciated the two-year timeline for red diesel reform, which will have given companies in these sectors time to prepare for this tax change.

Nevertheless, after two years of pandemic-related disruption to construction supply chains, and now significant volatility in fuel and material prices caused by Russia’s war in Ukraine, the change will only accelerate the rising construction prices. In an industry with already tight margins, these price increases will likely have to be borne by industry customers.

Loss of red diesel will impact plant and equipment fuel costs

The loss of red diesel will particularly affect contractors with significant fuel costs for plants and equipment, such as landscaping and landscaping contractors. For these specialized contractors, overall operational costs could easily increase by 5-6% as a result of the reforms. Although unwelcome on one level, the wider UK construction industry is increasingly committed to its net zero commitments. In that sense, I suspect ‘green’ trumps ‘red’ on this occasion.

David Savage

fuel refunded

Partner and co-leader of the construction and infrastructure team

Charles Russel Speechlys

Tel: +44 (0)7764 146405

[email protected]


Twitter: @crs_lawyers

LinkedIn: Charles Russel Speechlys

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