Red Diesel Tax Changes | Regulations, Impacts and Alternatives

Red diesel is basically a white deisel variant which is also known as low-duty white diesel. It is a specialised form of deisel designed exclusively for use in machinery and off-road vehicles. Red deisel has numerous applications in many sectors, such as agriculture, rail transport heating and non-commercial electricity generation. However, it is worth remembering that the red diesel has a lower tax rate and cannot be used for regular automobiles.

What is Red Diesel
off-road diesel taxation

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.
Make the transition from fossil fuels to cleaner burning alternatives such as HVO fuel
Why red diesel taxation is Changing
New Red Diesel Rules

How to Cope with the New Red Diesel Rules?

Start planning early: The sooner you start planning, the more time you will have to find alternative fuels and comply with the new regulations.

Talk to your fuel supplier: Your fuel supplier can help you find alternative fuels that meet your needs and can also advise you on the new regulations.

Consider switching to electric vehicles: Electric vehicles are a zero-emissions alternative to diesel vehicles, and they can save businesses money on fuel costs.

Invest in energy efficiency: Improving the efficiency of your vehicles and equipment can help you reduce your fuel consumption and save money.

What are the Alternatives to Red Diesel?

Industrial Heating Oil

Industrial heating oil is particularly manufactured to accommodate commercial and industrial buildings’ heating requirements. It is designed to be more efficient and safer as compared to its alternatives. Following are some of its specifications:

  • It has a higher density as compared to other alternatives.
  • It is highly viscous and requires pre-heating before burning.
  • It has a higher flash point which makes it safer than other alternatives.
  • It has a high heating value and can produce more heat per unit volume.

Hydrogenated Vegetable Oil

Hydrogenated Vegetable Oil, or HVO, is a low-emission fuel manufactured from vegetable oils and animal fats under high temperature and pressure conditions. It is then refined to remove impurities and increase its efficiency.

Here are some of its characteristics

  • HVO is manufactured with 100% bio content
  • It has a higher cetane level as compared to diesel.
  • It has lower sulphur content than diesel fuel.
  • It is highly sustainable and produces lower emissions.
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