Cost Implications of Red Diesel to the Marine Industry

Post by: TheYachtMarket News
06 March 2008

Marine Diesel

The Government has announced its long-awaited decision on the future of red diesel, and it's not good news for boaters.

But First... What is Red Diesel?

Traditionally, Leisure boaters in the UK have had permission to use red diesel, which is taxed at a lower rate. Coloured with red dye to distinguish it from the more expensive variety, red diesel is typically available for around 40p per litre, less than half the national average for diesel on the forecourt.

The issue

In recent years, permission to use red diesel became subject not only to national approval, but also the EU's. This is because the EU has regulations to ensure a harmonisation of tax rates on fuels and energy products, and permission to use red diesel rests on an exemption (or 'derogation') from the EU regulations.

The Royal Yachting Association (RYA) fought to extend the derogation that allowed UK leisure boaters to use lower duty red diesel. After much lobbying, the British government agreed in October 2006 to support their case. However, EU officials failed to accept the government's arguments and have decided that the derogation should end with effect from the end of December 2006. There is now a grace period in force for the phasing out of red diesel in the UK. It will be legally usable in leisure craft until November 2008.

Honesty is the best policy

Now the RYA and the British Marine Federation (BMF) say Her Majesty’s Revenue and Customs (HMRC) has decided private users can continue to use marked fuel (red diesel) provided they make a simple declaration to the supplier and pay the full duty rate for heavy oil.

The Registered Dealer in Controlled Oils (RDCO) will then be responsible for declaring the duty collected to HMRC. Confusing the situation slightly, fuel purchased for domestic use (ie, not for propulsion of the craft) can continue to be supplied at the rebated rate.

'Availability and Safety'

The HMRC's Dave Fitzgerald confirmed the core policy had been fixed but that HMRC would be working closely with the RYA, the BMF and other stakeholders to develop the detail of the declaration process and apportionment of fuel for domestic use.

Following that consultation process, HMRC will produce comprehensive guidance.

'Our main concerns were availability and safety,' said Neil Northmore, the RYA's government affairs adviser.

'We were aware that there was a danger that some retailers in more remote areas would simply not bother selling to pleasure boats on the premise that it would be more trouble than it was worth to distinguish between private and commercial craft, and then process the paperwork.'

Increase in duty

Howard Pridding, executive director of the BMF said:

'We are pleased with how HMRC has managed the consultation process and the position that they have finally adopted. Purchasers will be asked to self-declare whether their boat is used for commercial or private purposes and will be asked to sign a receipt for the fuel by the retailer, who will then forward the receipts to the HMRC.'

It will then be up to HMRC whether they wish to investigate whether the purchase was correct or not, he explained.

The Future of Red Diesel

On 28 February 2008, HM Revenue & Customs revealed that from 1 November this year, boaters will be paying a duty rate of 56.94 pence per litre, instead of the current rate of 9.69 pence per litre.

Boaters will be forced to keep records of all diesel purchases, as it will become a criminal offence to have diesel on board for propulsion that you cannot prove was bought at the higher rate of diesel.

Diesel bought for use as heating fuel will still be available at a rebated rate. So to add further complication, there will be a system in place where you can declare that a proportion of the diesel you are taking on is for 'domestic purposes'!

Only time will tell how this news will hit the market, but it's not hard to imagine it having some impact.