The Red Diesel Tax Change Guide

The government is implementing changes to red diesel (off-road diesel) taxation, effective from 1st April 2022.

These new regulations reduced the number of industries in which red diesel is allowed to be used, meaning that those industries which were removed would have to purchase non rebated fuel at a tax rate of 57.95 pence per litre (PPL), rather than the rebated rate of 11.14 PPL.

The new regulations brought in in April removed construction firms and recycling plants from the list of approved users of red diesel, while using red diesel for commercial heating and industrial power generation was also banned.

So, who is still allowed to use red diesel and purchase it at its rebated price? Let’s take a look:


Machines used for agriculture can range from tractors to diggers and combine harvesters, which are all allowed to be fuels with rebated red diesel for off-road use. They can also use red diesel on public roads, so long as the purpose is related to agriculture, but they may not travel further than 1.5 kilometers, and may only travel between sites as is necessary. The restrictions on usage of red diesel in the agriculture industry also applies to horticulture, forestry, and aquatic farming.

Marine Diesel Fuel MGO Red Boat Barge 1000ppm Class D


Rebated fuels are still permitted to be used in all manner of maritime usage. The only UK restrictions that exist on maritime use of rebated fuels state that private pleasure craft may not access red diesel for propulsion purposes. These craft may still purchase rebated fuel for use in secondary on-board power generators, or for other, non-propulsion uses. Other forms of maritime transport, like cruise liners, tankers, and other large ships, continue to be allowed to access red diesel.

industrial heating oil

Non-Commercial Heating and Power

Though the heating or powering of large industrial sites through rebate fuels has been ended, non-commercial power and heating is perfectly acceptable to continuing using red diesel for. This means there are no changes to the duty you pay for home heating oil, or to power a power generator in your home. Residential use of rebated fuels remains unchanged.

At Compass Fuel Oils, we offer a variety of alternative fuel options and can assist with storage and tank flushing arrangements. We can clean your tank and remove any rebated fuel to ensure compliance before the April 1st deadline.

If you are unsure whether your business is exempt, contact Compass Fuel Oils at  0330 128 9838 or check with your local HMRC office. Additional information is available on the HMRC website, and the Government has published dedicated guidance for red diesel users to help them prepare. It is advisable to replace existing fuel stocks while the red diesel market remains strong, and our experts are available to provide advice.

What is Red Diesel?

Red diesel is a reduced/low duty fuel and is also subject to a lower 5% VAT rate unless over 2300 litres is delivered in any single delivery, then it must revert back to 20% VAT.

The fuel is marked with a special red dye allowing Customs and Excise to identify when and where red diesel has been used, and also to trace the origins of supply.

Why is Red Diesel tax changing?

Red diesel makes up approximately 15% of total diesel consumption in the UK and results in the emission of nearly 14 million tonnes of CO2 annually. The adjustment in red diesel tax will necessitate numerous industries to utilise fuel taxed at the standard rate for white diesel, prompting businesses to consider alternative fuels in order to minimize their environmental footprint.

What does the change in red diesel duty mean for your business?

Whether or not you can continue using red diesel after 1st April 2022 depends on your industry and the purpose for which you use red diesel. If your sector falls under the aforementioned categories, you may continue using red diesel.

However, if your business does not fall under these categories, you must refrain from purchasing red diesel and instead switch to alternative fuels such as white diesel (DERV) or HVO fuel to comply with the new regulations.

The change in red diesel duty will result in significant cost increases for businesses. Marked red diesel currently attracts a fuel duty rate of 11.14 pence per litre (ppl), which is included in the price of red diesel that businesses pay.

These businesses will now need to switch to regular white diesel, which has a duty rate of 57.95 per litre (an increase of 46.81 pence per litre), or alternative fuels such as Hydrotreated Vegetable Oil (HVO).

Furthermore, the penalties for violating restrictions on the use of rebated fuels will change, allowing HMRC to seize vehicles and other machinery in certain circumstances.

switching to renewable fuels

Looking for a greener alternative diesel?

We’ve invested heavily in a new wet depot to store HVO, helping future-proof the business as customers transition to fossil-fuel alternatives.

Although there has been a 100% increase in adoption over the past year, the high cost of these alternative fuels may present a barrier for some industries.

We empathize with the challenges faced by businesses and anticipate that the government will prioritize and support the broader implementation and utilization of eco-friendly fuels like HVO. We urge the UK government and other G7 leaders to view alternative fuels as a feasible approach to addressing climate change.

Contact us to discuss our sustainable HVO trials on 0330 128 9838.

industrial boiler for commercial heating


Do you use Red diesel for Commercial Heating?

In the wake of duty changes effective from April 1, 2022, numerous businesses found themselves transitioning from red diesel (gas oil) to a more viable alternative for their industrial heating needs.

This shift has spotlighted Industrial Heating Oil (IHO), a cost-effective and efficient fuel option that is increasingly becoming the preferred choice for commercial heating.

Red diesel for sailboats post-April 2022

In a significant reversal, the Chancellor’s announcement stated that sailors and boaters will still be allowed to use red diesel in their sailing vessels after April 2022, marking a policy shift from Budget 2021.

Previously, the government intended to eliminate the red diesel subsidy from 2022, except for heating onboard. However, private pleasure craft can now continue to use red diesel and compensate their fuel supplier for the price difference between red and white diesel for the portion used for propulsion.

What other topics were covered in the March Budget 2021?

Fuel duty frozen

The Chancellor announced in the 2023 Spring Budget that fuel duty will remain at 52.95p per litre for at least another 12 months. This is designed to save the average driver around £100 over the next year.

For over a decade, fuel duty has been frozen rather than increasing with inflation, resulting in a significant tax cut for motorists and costing the government over £10 billion annually to maintain the duty freeze. The tax on petrol and diesel sales has remained at 58ppl plus VAT since 2011.
During the pandemic, the public’s reliance on cars for essential travel outweighed the mounting pressure to reduce carbon emissions. Increasing the already high fuel duty could potentially harm the economy by raising consumer and business costs.
Potential fuel duty increases are expected to be assessed within the government’s plans to achieve net zero emissions by 2050, as some argue that such a move could hinder the low carbon transition in road transport.

UK fuel prices on the rise

RAC Fuel Watch reports that rising oil prices have caused a steady increase in pump prices for four months in a row, with a 3ppl hike in February. Oil prices jumped by $10 per barrel to $65.83, a level not seen since January 2020. As of now, a barrel of oil is $29 more expensive than it was in November.
As a result, filling up the average fuel tank now costs over £1.70 more than at the beginning of the month and £5 more than at the end of 2020. In late February, the average price for petrol was 123.38p, up from 120.22p at the start of the month.
Diesel also saw an increase to an average of 126.47p, up from 123.35p on February 1st. This means that fuel duty currently makes up 47% of each litre of petrol and 46% for diesel.

Sustainable energy and transportation

In an effort to encourage private companies to adopt greener infrastructure, the Chancellor announced an initial £12 billion in grants and £10 billion in government guarantees for the UK Infrastructure Bank.
Despite the government’s focus on electric vehicles as a means of reducing harmful emissions, the budget did not provide specific details on future investment plans to help achieve the net-zero target. This includes additional investment in electric vehicle battery manufacturing and the UK’s EV charging infrastructure, which currently relies on fossil fuels.

The corporation tax will be raised to 25% in 2023

The Chancellor’s announcement includes an increase in corporation tax to 25% by 2023, which will primarily impact profitable businesses and high-earning entities like construction firms. Currently, only 10% of firms are expected to be subject to the new higher rate.

Under the new tiered system, companies with annual profits of £50,000 or less will continue to pay the current 19% rate. For profits between £50,001 and £250,000, tax rates will be tapered, with only companies making over £250,000 paying the new 25% rate from 2023.

On a more positive note, a ‘super-deduction’ scheme will be introduced from April 1, 2021, until March 31, 2023, allowing companies investing in new plant and machinery to benefit from a 130% first-year capital allowance. This incentives companies to delay investment until April 2021 when the ‘super-deduction’ launches, encouraging the adoption of cleaner and more efficient equipment over the following two years.

It’s important to note that the ‘super-deduction’ is exclusively available to companies and does not extend to businesses operating as sole traders or partnerships. The National Farmers Union President Minette Batters expressed disappointment that the ‘super-deduction’ for machinery investment is limited to companies and not accessible to all businesses, particularly as significant investment in new farm technology is necessary.

For more information, click to see the government corporation tax guide.

How can we help you? We can buy back your fuel!

Red diesel prices are decreasing by up to 10% per month. Exchange your fuel reserves now to guarantee the highest possible return for your surplus assets. We offer collection and repurchase of your rebated fuel, allowing you to sell at the optimal price before rates decline further.

Let us handle all of your fuel swap to ensure your tank is compliant:

  • Fuel uplift of rebated stock
  • Buyback rebated fuel
  • Tank clean if required
  • HVO supplied at competitive rates with credit terms available

Call 0330 128 9838 now for today’s price and fast UK delivery. 

white diesel

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