HMRC answers IPAF FAQs on end to red diesel rebate

The International Powered Access Federation (IPAF) has secured additional guidance for the powered access industry on the upcoming end to the rebate on red diesel for plant machinery, in the form of a FAQ sheet prepared specially by HM Revenue & Customs in response to a recent meeting of the IPAF UK Country Council.

The frequently asked questions were answered by HMRC officials and offered to IPAF members in supplement to existing guidance from HMRC about the planned end to tax relief on red diesel for construction plant machinery in the UK from 1 April 2022.

Richard Whiting, IPAF’s UK & Ireland Market General Manager, says: “Our members expressed multiple concerns around the negative consequences of this change, from increasing costs to end-users and stifling green investment, to confusion over hire of machines between different sectors and creating a £100m black market in white diesel.

“Many of our members felt the HMRC guidance issued last year was not specific enough, so we requested a presentation from HMRC to IPAF’s UK Country Council, with questions supplied in advance to the officials who joined the meeting. We are grateful to HMRC for attending that meeting, and for drawing up the questions and responses into a handy document that we are pleased to now share.

“The key message was that HMRC will allow existing stocks of red diesel to be used up, as long as machines are fuelled before the 1 April 2022 deadline, and that all efforts to comply are properly documented. HMRC also suggests the onus be placed on rental customers to return hired machines with the correct fuel in the tank after 1 April, or additional costs are likely to be incurred to recover the fuel and dispose of it.

“The answers to the questions our members raised provide welcome clarification on a number of areas that weren’t explicitly covered in the previously published guidance. However, IPAF reminds members that this industry-specific FAQ sheet is purely supplementary to the legislation as of 1 April 2022 and HMRC’s own guidance. IPAF urges all members to familiarise themselves fully with the upcoming changes to the law, and the HMRC guidance, if they have not already done so. If any part of the changes remains unclear, IPAF recommends members to contact HMRC directly to seek guidance or clarification.”

Please read on for the IPAF/HMRC FAQs.

		IPAF UKCC questions to HMRC, 18 Jan 2022	HMRC responses, 1 Feb 2022
1.	Are we able to use any remaining red diesel from our fuel tanks for heating of depots (permanent or mobile systems) or would this be classified as commercial use and therefore not permitted?		You can use rebated fuel to heat a commercial depot before 1 April 2022 but not after that point. A depot is commercial premises and only non-commercial premises can use rebated fuel after that point for heating or electricity generation.
2.	Are there any forms that must be used to record disposal of surplus red diesel, and is there a compensation mechanism for losses arising from the disposal (ie a rebate on previously paid taxes)?		This is not one that HMRC can give an opinion on, but there are rules around disposal of oil and fuel. Check with your disposal contractor about what requirements there are. No compensation will be paid on oil or fuel that is disposed of.
3.	If a customer adds red diesel before returning the equipment (after 1 April 2022) would the hire company be in breach of the regulations if it were then to hire out that machine containing the red diesel added by the previous customer? Depending on the answer, we may be required to dip and analyse every diesel machine being returned.		You will need to demonstrate to HMRC if asked that the rebated fuel was put into the engine prior to 1 April 2022 and that the vehicle/machine was entitled to use that fuel then. If rebated fuel is added after 1 April 2022, then that tank will need to be flushed. It is your responsibility to ensure that this is done and that your customer does not add fuel that they should not to the equipment they have hired from you.
4.	If hire companies need to dip tanks, what level of analysis is required and how is this required to be recorded?		A simple visual inspection would normally be enough to show the hire company whether or not marked fuel had been added to the engine.
5.	Is there any ongoing discussion in government about incentivising more environmentally acceptable fuels (such as HVO) by lowering duty, or is this going to be left purely to market forces?		HM Treasury are the people you need to lobby about any changes to duty rates, but we are aware that the Government does want to encourage non-hydrocarbon types of fuel in the future, including hydrogen.
6.	Some truck-mounted MEWPs licenced for road use have been registered as “special vehicles” – effectively mobile cranes, historically able to run on red diesel. Under the new legislation can the supplementary (donkey) engines used to power the boom be run on red diesel?		The law will change from 1 April 2022 and after that rebated fuel will only be able to be used in certain vehicles and machines used for specific purposes. If a MEWP is used for one of these purposes, eg agriculture, then it may still use rebated fuels, otherwise neither the main engine nor a donkey engine can be run on red diesel.
7.	The treasury said that it will work with a “light touch” with regards to enforcement for the first six months, as there will be traces of red diesel in machines for a while. Please describe light touch.		HMRC will take a pragmatic approach. There may be traces of marker in tanks for some time after 1 April 2022, so we will need the vehicle/ machine owners to be able to show us any rebated fuel was legitimately added before then.
8.	The guidance states fixed diesel storage tanks do not need to be flushed, but is it acceptable to leave small quantities of red in the tank or to swap to white when refuelling in March, accepting that for a period of time diesel will be mixed?		As mentioned above, we will take a pragmatic view if we find traces of markers in fuel tanks after 1 April 2022. If there are traces of marker from fuel in the engine but you can show the rebated fuel was legitimately put in prior to 1 April, we will not take enforcement action.
9.	In regard to portable fuel bowsers returned from hire after 1 April 2022, can the portable fuel bowsers be topped up with white diesel or do the contents need to be drained prior to the next hire?		Drain bowsers before 1 April 2022, as they are used to supply engines and you cannot put rebated fuel in many engines after 1 April, neither can you fill them with a mix of fuels. You can put rebated fuel in an engine pre-1 April and use remaining fuel thereafter, but bowsers are not engines. Do not decant a mix of fuel into an engine that cannot use rebated fuels post 1 April.
10.	For vehicles or machines used for both allowed and non-allowed purposes, guidance states the tanks need to be flushed after each use when switching. Do fuel filters also need to be changed?		No, but you should flush the system so that you have removed as much trace of rebated fuel as possible.
11.	Can red diesel be used in MEWPS supplied to not-for-profit organisations such as directly into the Department of Health and Social Care or registered charities, or do exemptions only cover power and heat generation?		No, rebated fuel will only be able to be used in certain vehicles and machines used for specific purposes after 1 April 2022 – use of MEWPS by charities or other not-for-profit organisations does not count as an allowed purpose.
12.	We have a sister company in the Republic of Ireland (RoI) that we cross-hire machines from. If they supply machines to us full of green diesel, will the fuel be allowed? If not, what are we supposed to do with the green diesel?		If you rent a vehicle/machine in RoI and you are permitted to use green diesel for the purpose you are hiring it, then you can use the machine on green diesel when you cross into Northern Ireland.
13.	We have a sister company in the Republic of Ireland that we cross-hire machines to; will we be allowed to supply the machine with red diesel?		You should check this with your sister company to establish that the Revenue Commissioners in RoI will accept you can use rebated fuel in the machine and they are content with red diesel.
14.	We supply machines to the agricultural sector, are we allowed to supply machines to them full of red diesel?		Yes, if you are content that the vehicle is allowed to use rebated fuel and is being put to an accepted use (eg agriculture), that is permitted.
15.	If a machine has been on hire to the agricultural sector and we supplied the machine full of white diesel, and they used the machine for half a day and filled it back up with red diesel, what do we do about the mixed diesel in the tank?		It will be your responsibility to ensure that the wrong fuel is not put in the machine by the customer. If rebated fuel was put in a machine it could only be used for purposes where you may use rebated fuel. If you wanted to use it later for a non-specified purpose you would need to flush the engine (see above). It’s in the hirer’s interest to not permit this because the customer is refilling with something that costs less for them to buy than the fuel the hirer used.
16.	Is there an acceptable level of mixed diesel allowed in a tank? If so, what percentage/shade of pink is acceptable?		You need to be able to show rebated fuel in the tank was there before 1 April 2022. We expect to see lower amounts of rebated fuel over time.
17.	We supply lots of customers in the border counties of Northern Ireland and the Republic, a lot of occasions arise where the machines are being used on infrastructure projects that straddle both countries’ jurisdictions, what type of fuel are we allowed to use in this instance?		You need to demonstrate if you have green diesel in the machine that you got that fuel in the RoI. If you have any traces of red in the engine you need to demonstrate that the fuel was put there before 1 April 2022. If using red diesel in NI, you can only do so if you are using an allowed machine for an accepted use.
18.	Are there are any changes to regulations on transporting or towing machines or tanks with red diesel or HVO in them?		No, the vehicle transporting or towing machines using rebated fuel cannot tow using rebated fuel.
19.	When a machine/tank comes back off hire will we need some sort of testing kit to check if it has been returned with green, red or white diesel, or a mix?		It is for you to decide how you wish to analyse fuel, but as above, a simple visual check should be sufficient to tell if the machine contains any marked fuel.
20.	Are different ranges of colours of HVO available? And if so, do the different colours denote different VAT rates depending on the colour?		If you mean can there be rebated HVO, the answer is yes. It will have to be marked as other rebated fuels. The VAT rate for fuel other than that for domestic power is the VAT standard rate.
21.	How will HMRC be enforcing the legislation change?		You should be ready to provide evidence that your machine is either entitled to use rebated fuels or has traces of rebated fuel added before 1 April 2022 if not an allowed machine/vehicle.
22.	What are the potential penalties for failing to comply?		The current seizure/penalties to restore as of prior to 1 April 2022 will all still apply.
23.	How will HMRC ensure unscrupulous companies do not receive a competitive advantage by breaking the law?		Please use the HMRC Excise hotline to report any misuse that you are aware of, by calling XXXX
24.	Are HMRC planning on a wider information/education programme to get this message out to the general public and business, many of whom are unaware of this impending change?		We have sent reminders out to Registered Dealers in Controlled Oils about the changes they will have to make and asked them to inform customers. There has been considerable press interest recently in the forthcoming changes.
25.	New machinery imports from the EU and further afield are often sent with red diesel in the tanks. Does this practice now need to stop and if so will the Government help to enforce this?		If rebated fuel was added in an EU state where it was permitted in that vehicle, then it is permitted to use the fuel in the machine in the UK, but you cannot fill it up with rebated fuel after importation, unless the machine is put to an accepted use.