How Will the Chancellor’s Latest 2021 Budget Affect Red Diesel Users?
Posted on 11th March 2021
There is no denying that the Coronavirus pandemic has historically changed the British economy and our road to recovery will be a long and challenging process. Understandably, Chancellor Rishi Sunak’s second budget focused on his plans to help the UK economy bounce back, but there were also some key announcements on the issues that affect fuel duty, red diesel usage and more.
Fuel duty rates frozen
As anticipated, the Chancellor revealed in his 2021 Budget that fuel duty will be frozen once again, for the 11th consecutive year, from the 2021 to 2022 financial year. This is a measure designed to support businesses and families during the pandemic.
Rather than increasing with inflation, fuel duty has been frozen for over a decade which is a huge tax cut for motorists, costing the government over £10billion a year in continuing the duty freeze. The tax imposed on petrol and diesel sales has remained at 58ppl plus vat since 2011.
Following the pandemic, the public’s reliance on cars for a safe means of travel for essential journeys outweighed the increasing pressure to lower carbon emissions. Raising fuel duty could risk damaging the economy even more from increased consumer and business costs.
Potential fuel duty rises are set to be considered within the government’s plans to achieve net zero emissions by 2050. This comes from arguments that the move could hinder road transport’s low carbon transition.
UK fuel prices on the rise
Rising barrel oil prices have led to an upsurge in prices at the pump for four sequential months, comprising a 3ppl increase in February, says RAC Fuel Watch. In February, oil rocketed by $10 per barrel to $65.83, a price not observed since mid-January 2020. At the time of writing, a barrel of oil is $29 more than it was at the start of November.
Consequently, filling up the average fuel tank is currently more than £1.70 more expensive than the start of the month and £5 more expensive than the end of 2020.
At the end of February, motorists paid an average of 123.38p for petrol, up from 120.22p at the beginning of the month. Diesel is also up to an average of 126.47p, increasing from 123.35p on 1st February. This means fuel duty currently accounts for 47% of each litre of petrol and 46% for diesel.
Red diesel and other rebated fuels reform
Heating and motor fuels are subject to fuel duty; however, because fuel duty was intended to be a tax on road vehicles, some fuels must be taxed at a lower (rebated) rate. Red diesel, as a non-road fuel that is exempt from fuel duty, contains a chemical marker with a red dye to help identify fraudulent use.
The government announced at Budget 2020 that it will remove the entitlement to use red diesel for many sectors from April 2022. This will require many industries to use fuel that’s taxed at the standard rate for white diesel and therefore encourages businesses to use alternative fuels to help reduce their environmental impact.
At Budget 2021, the government added more industries to the list that will continue to be permitted to use red diesel. Therefore, from April 2022, the entitlement to use red diesel and rebated fuels will be restricted to the following purposes:
Commercial boating industry, including fishing and inland water freight industries and passenger ferries
Non-commercial power generation, such as hospitals and off-the-grid households
Agriculture, forestry, horticulture and fish farming
Passenger, freight and maintenance vehicles that run on rail tracks
Non-commercial heating, such as off-the-grid homes, places of worships and townhalls
Travelling funfairs and circuses
Amateur sports clubs, including golf courses
Fuel duty will apply to biodiesel, biofuels and fuel substitutes used in heating, with the rebated duty rate applied to non-commercial heating. Penalties for breaking restrictions on the use of rebated fuels will also change, allowing HMRC to seize vehicles and other machinery in certain circumstances.
Those who will lose their red diesel entitlement must not purchase red diesel for use from 1 April 2022 and run down their tanks of existing stocks before that date.
To help ensure compliance and minimise the risk that white diesel is contaminated with the red diesel marker, registered fuel suppliers that switch a fuel tank from red to white diesel will need to flush out the tank and supply lines until no trace of market rebated fuel remains.
Red diesel use for vessels after April 2022
A big U-turn in the Chancellor’s announcement was that sailors and boaters will continue to be permitted to use red diesel in their vessels after April 2022, a change in policy from Budget 2021.
Last year, the government planned to remove the subsidy on red diesel from 2022, with the exception of heating onboard. However, private pleasure craft can now continue to use red diesel and pay their fuel supplier the difference between the red and white diesel rate on the proportion used for propulsion.
Green power and transport
The Chancellor revealed an initial £12 billion in grants and another £10 billion of government guarantees for the UK Infrastructure Bank to help private companies “green up” their infrastructure.
While recent government announcements have revealed electric vehicles are the favoured route to reduce harmful emissions, the budget surprisingly left out the minutiae of future investment plans to help the government reach its net-zero target, such as additional investment in electric vehicle battery manufacturing and the UK’s EV charging infrastructure, that currently relies on fossil fuels.
Corporation tax to increase to 25% in 2023
The Chancellor also announced that corporation tax will be increased to 25% in 2023. Profitable businesses and big earners such as construction firms will be hit the hardest, with only 10% of firms currently set to pay the new higher rate.
Corporation tax rates will be tiered for the first time and those firms that make an annual profit of £50,000 or less will continue to pay the current 19% rate. Rates will then be tapered between £50,001 and £250,000 profits so that only those companies making over £250,000 will pay the new 25% rate from 2023.
More optimistically, a new ‘super-deduction’ scheme will be introduced from 1 April 2021 until 31 March 2023 which will allow companies that invest in new plant and machinery to benefit from a 130% first year capital allowance.
With this ‘super-deduction’, firms can obtain tax credits in the year they invest, so companies are advised to delay investment until April 2021 when the ‘super-deduction’ launches. This move also encourages companies to refresh their equipment to cleaner, more efficient alternatives during the two years from 1 April.
However, it must be noted that the ‘super-deduction’ is available to companies only and does not include those businesses that operate as sole traders or partnerships. It’s estimated that only 10-15% of farms operate their main business as a company. The National Farmers Union President Minette Batters said they are “disappointed that the ‘super-deduction’ on machinery investment is only applicable to limited companies and not available to all businesses, especially when significant investment in new farm technology is required.”
How can Crown Oil help?
Crown Oil has over 70 years’ experience supplying a wide range of fuels across the UK. Thanks to our large buying power, we are able to pass on these savings to our customers in the form of lower prices. We also specialise in the supply of bulk fuels, which helps you save time and money on placing regular fuel orders.
We understand the frustrations felt by businesses and hope that the government begins to put its weight behind the wider rollout and use of greener fuels such as HVO. With the upcoming G7 Summit due to take place in June 2021, we hope the UK government and other G7 leaders consider alternative fuels as a viable solution to tackling global warming.
We’ve invested heavily in alternative fuels such as HVO fuel to help businesses reduce their environmental impact while ensuring performance is not impacted. While we have seen a 100% uptake in the last year, the current cost of these alternatives can hinder some industries use. Therefore, the introduction of fuel excise duty rebate would help increase adoption as per European countries such as Scandinavia.
To find out more about our bulk fuel delivery service, our quality red diesel or our wide range of alternative fuels, call us today on 0330 123 1444.