Edited on 8 June 2022
From 1 April 2022, there will be changes to who can use rebated 'red' diesel, and the reasons you can use it. A number of sectors, including the construction sector, will not be able to use red diesel in their vehicles, appliances or machinery from that date. These changes will come into effect in line with the changes proposed in the United Kingdom.
Who will be affected?
Businesses and individuals currently allowed to supply or use rebated “red” diesel and rebated biofuels.
Why are these changes happening?
Under the terms of the Customs and Excise Agreement the Isle of Man Government is required to keep the duty rates and reliefs available on hydrocarbon oils the same as those imposed in the United Kingdom.
In 2020, the United Kingdom government announced that it would remove the entitlement to use red diesel and rebated biodiesel from most sectors from April 2022, to help meet its climate change and air quality targets. The changes mean that most current users of red diesel will need to use unrebated “white” diesel, like motorists, which more fairly reflects the harmful impact of the emissions they produce. Removing most red diesel entitlements will also help to ensure that the tax system incentivises users of polluting fuels like diesel to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives, or just use less fuel.
What is red diesel?
Otherwise known as rebated diesel, gas oil, off-road diesel or “tractor diesel”, red diesel is a fuel intended for use other than road fuel, and is therefore taxed at a lower rate, hence why it is cheaper. Due to its lower duty rate, there are strict legal requirements about when and how it can be used, which is why it is dyed red to help identify illegal use.
What is changing?
From 1 April 2022 onwards, you will only be able to use red diesel for the following purposes:
- for vehicles and machinery used in agriculture, horticulture, fish farming and forestry. This includes allowing vehicles used for agriculture to be used for cutting verges and hedges, snow clearance and gritting roads
- for heating and electricity generation in non-commercial premises - this includes the heating of homes and buildings such as places of worship, hospitals and town halls; off-grid power generation; 'non-commercial premises' can include premises being used to provide a public service that is not for a fee
- for maintaining community amateur sports clubs as well as golf courses (including activities such as ground maintenance, and the heating and lighting of clubhouses, changing rooms etc.)
- as fuel for all marine craft refuelling and operating in the Island and the UK (including fishing and water freight industries), except for propelling private pleasure craft in Northern Ireland. In Great Britain, a private pleasure craft may continue to use rebated (red) diesel, however an amount equal to the rebate must be paid on the fuel used for propelling the boat. For further information please refer to Public Notice 554
The measures will also:
- extend fuel duty to biodiesel, bioblends and fuel substitutes used in heating, where previously it had not been subject to duty
- in relation to biodiesel etc., apply the lower duty rate to non-commercial heating and the full rate of duty to commercial heating
Sectors and applications that don’t fall into the above categories will no longer be able to use red diesel from 1 April 2022. This will include sectors, for example, such as construction, mining and quarrying, ports, manufacturing, haulage (for transport refrigeration units on lorries), road maintenance, airport operations, plant hire, logistics and waste management.
What do I need to do if I will not be eligible to use red diesel from 1 April 2022?
If you will no longer be allowed to use red diesel from 1 April 2022, you are advised to run down your existing stocks before that date. You may need to review your weekly or monthly usage to determine how much red diesel you are likely to use by 31 March 2022, and plan how to manage any surplus stock. If you order supplies of red diesel between now and 1 April 2022 you should only order the amount you expect to use by that date.
Customs & Excise acknowledges that due to the requirement to maintain minimum fuel stock levels for safety reasons and operational requirements, fully duty-paid fuel may be put into and mixed with existing stocks of red diesel in storage tanks. As such, there may be a red indicator in the tank beyond 1 April 2022.
Customs & Excise may carry out checks on storage tanks, and on vehicles, machines and appliances using diesel to confirm the correct fuel is being used. If, after 1 April 2022, we find traces of fuel markers in the fuel supply of a vehicle or machine that is not allowed to use it, you may be asked to provide evidence to demonstrate that any rebated fuel was put in before the rules changed and is still being used up. You should be able to demonstrate that you have been refilling with the correct fuel since the rules changed by retaining invoices or receipts showing purchase of fully duty-paid diesel/biofuels.
Further information will be provided prior to 1 April 2022, but in the meantime if you have any queries please contact Customs and Excise on +44 1624 648190.