Red Diesel Tax Changes | Regulations, Impacts and Alternatives

What is Red Diesel?

The red colour of this particular form of diesel is because a red dye is added to the diesel to differenciate it from the white diesel. This dye serves a crucial purpose by allowing inspectors to readily and conclusively identify cases of illegal fuel usage, thereby enabling appropriate actions to be taken against the offenders. Penalties for such violations may include vehicle impoundment and the imposition of fines.

How is off-road diesel taxation Changing?

As of April 1, 2022, the UK government enacted modifications that eliminated the qualification of red diesel supplies for various sectors. As a result, numerous businesses are now obligated to use fuel taxed at the standard rate applicable to road diesel (DERV).

List of Allowed Red Diesel Users

• Sailing, marine transport, and boating
• Agriculture, fish farming, horticulture, and forestry
• Community amateur golf courses and sport clubs
• Travelling circuses and fairs
• Non-commercial purposes like heating and electricity generation
• Rail transport

List of Disallowed Red Diesel Users

• Airport operations and ports
• Manufacturing
• Leisure
• Commercial heating
• Mining and quarrying
• Waste management
• Oil and gas extraction
• Logistics and haulage
• Construction and road maintenance

Why red diesel taxation is Changing?

Red diesel produces a higher amount of carbon dioxide as compared to its modern variants. As of 2023, red diesel is used in nearly 15% of diesel applications in the UK which emit almost 14 million tonnes of toxic carbon dioxide per annum. Moreover, the UK government is aiming for net zero carbon emissions by 2050. That is why the government of the UK have changed the tax on red diesel to encourage businesses and other applications to use other eco-friendlier diesel variants, which are taxed at a standard rate. This will help in reducing the carbon footprint as well as the environmental effects considerably.

How Will It Affect Your Business?

The effect of new red diesel duty changes on businesses depends on a number of factors, such as the size of your business, the type of vehicles you use, and your location. Here is a short guide:

Increased Fuel Costs

The most immediate impact will be an increase in fuel costs. Red diesel is currently taxed at a much lower rate than white diesel, so businesses that are no longer eligible to use red diesel will see their fuel costs increase by an average of 40%.

Increased Compliance Costs

Businesses will also need to comply with new regulations, such as keeping records of fuel usage and ensuring that all vehicles are properly registered. This will add to the administrative burden and could lead to additional costs.

Challenges in Finding Alternative Fuels

Some businesses may find it challenging to find alternative fuels that meet their needs. For example, businesses that use red diesel in off-road vehicles may not be able to find an alternative fuel that is compatible with their equipment.

Increased Pressure to Reduce Emissions

The tax changes are part of the government’s wider plan to reduce emissions. This means that businesses that use red diesel will be under increased pressure to reduce their emissions, either by switching to alternative fuels or by improving the efficiency of their vehicles and equipment.