BMF Guidance on Red Diesel
Introduction
This guidance is intended to assist companies who supply fuel to
private pleasure craft to implement the changes that will take
place on 1 November 2008 following the expiry of the UK derogations
to the Energy Products Directive that allowed for a reduced rate of
duty on fuel supplied to private pleasure craft users.
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Overview
The EU Energy Products Directive provides that from 1 November
2008:-
- The full rate of duty is to be applied to fuel used for “the
purposes of navigation” (which has been reflected in UK law as
“fuel for propelling” of private pleasure craft;
- Red diesel at the rebated rate of duty can continue to be used
for domestic purposes aboard a boat such as heating, lighting
electricity generation, refrigeration, air conditioning or hot
water;
- Customers purchasing fuel will be required to make a
declaration about their fuel usage; and
- Fuel suppliers will need to become Registered Dealers in
Controlled Oils (RDCO’s) and will return the duty collected to
HMRC.
HMRC has understood the industry’s concerns about the potential
difficulties for fuel suppliers in calculating duty and VAT when
faced with customers claiming different percentages of fuel used
for propulsion. The BMF, RYA and Inland Waterways Association put
significant effort into familiarising HMRC officials with the wide
variety of craft that make up the boating market from small
sportsboats with minimal domestic fuel use to residential
narrowboats on the inland waterways with a high domestic fuel
usage. Following this work, HMRC have confirmed that industry and
Government analysis suggests that a split of 60% for propulsion and
40% for domestic use reflects most peoples use and it is therefore
likely that many users will declare such an apportionment. However,
where a purchaser knows that the propulsion use may be more or less
than the above apportionment split, or a craft clearly has no
domestic use, then they must declare their actual intended
usage.
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Responsibilities of Fuel Suppliers
Companies will need to register as a supplier of fuel to private
pleasure craft users under the RDCO scheme. A simple notification
form will be made available to RDCO’s shortly along with
instructions for completion and return. RDCO’s will receive a new
RDCO certificate and will be required to return the duty collected
to HMRC on an annual basis.
Please note that HRMC have stated that the process of
notification and amendment of RDCO registration is expected to take
some time and not all RDCO’s will receive an amended registration
certificate by 1 November 2008. However, it is important that
RDCO’s which supply fuel to private pleasure craft must start
charging and collecting duty from 1 November 2008 and keep records
of the supplies and duty due.
The first return and payment by all registered suppliers will
cover the 12 month period from 1 November 2008 to 31 October 2009
and you will have a further 21 days from the end of this period in
which to submit the return and payment to HMRC. There will be a new
payment return, separate from, and additional to, your usual RDCO
return, showing your RDCO number and on which you must declare the
total amount of duty due, and sign and date it. HMRC will send you
the return in advance of 31 October 2009. If you wish to submit a
return more frequently or change the stagger to coincide with your
usual RDCO return, you will be able to do so after this initial 12
month period.
Details of the methods of payment, addresses, account number
will be published in a public notice.
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Charging duty and VAT
The following is an illustration example of a calculation of
duty and VAT under the new arrangements. It is intended to be an
illustration only. The proportion split between propulsion and
domestic usage will vary.
HMRC have confirmed that VAT is charged at the reduced rate of
5% on fuel for propulsion and domestic use.
This example assumes a 60% (propulsion) and 40% (domestic) split
for a purchase of 100 litres of red diesel (the price of diesel is
assumed to be 0.70ppl which includes 9.69ppl duty already paid to
fuel supplier):
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Propulsion calculation (i.e. 60%)
60 litres @ 0.70ppl =
£42
60 litres @ 0.4066 = £24.40
(additional duty)
VAT @ 5% =
£3.32
Propulsion Total =
£69.72
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Domestic calculation (i.e. 40%)
40 litres @ 0.70ppl =
£28
VAT @ 5% = £
1.40
Domestic Total = £29.40
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Transaction Total = £99.12
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Responsibilities of the Fuel Purchaser
It is the responsibility of the fuel purchaser to make a
declaration in writing about the amount of fuel being purchased for
propulsion. A simple declaration that incorporates the following
wording will be required.
“I declare that 60% of the fuel purchased will be used for
propelling a private pleasure craft”.
HMRC is aware that accounting methods and systems can vary from
supplier to supplier, for example, some may wish to print the
declaration on invoice slips or till receipts. Others may wish to
prepare a simple form for signature by the customer. An example
proforma is attached.
The Declaration must be signed and dated by the purchaser. The
RDCO supplier must ensure that the purchaser’s name and address is
noted in his normal records.
This process can be simplified for regular customers who can
make one annual declaration covering all their transactions for a
period of up to one year.
The Declaration about fuel usage is the responsibility of the
purchaser.
The RDCO has a duty of care when selling or delivering
controlled oil and must therefore take all reasonable precautions
and exercise reasonable care to ensure that they only make supplies
to customers who have a legitimate use for that oil. (See HMRC
Notice 192).
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Commercial Usage
Supplies of red diesel to commercial craft are completely
unaffected by these changes and you can continue to supply to
commercial users at the fully rebated rate of duty.
The definition of “private pleasure craft” for the purposes of
the Energy Products Directive and the purchase of red diesel in the
UK is defined in the Directive as:-
“Any craft used by its owner or the natural or legal person who
enjoys its use either through hire or through any other means, for
other than commercial purposes and in particular other than for the
carriage of passengers or goods or for the supply of services for
consideration or for the purposes of public authorities”
This definition will be the criteria by which commercial usage
will be assessed. We set out below our understanding of how this
will be applied to certain types of boat operation.
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Likely to be
regarded as pleasure usage because the Hirer will be deemed a
natural or legal person who enjoys its use. |
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Likely to be
regarded as pleasure usage because the Hirer will be deemed a
natural or legal person who enjoys it use. |
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Classed as
commercial where the Charter company provides a Skipper as this may
equate to the supply of services for consideration. |
- Sailing School Training Courses
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Classed as
commercial as this equates to the supply of services for
consideration. |
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Classed as
commercial if the delivery is by professional crew. |
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Residential Boats
HMRC have recognised the status of residential boat owners whose
primary residence is their boat. Some of these will be at fixed
moorings or moved a very short distance along the towpath from
permanent moorings to fuel. If they live aboard the craft
permanently and hold certain documentation such as houseboat
licence, residential mooring licence, council tax bill in respect
of the mooring or other documentation that provides proof of
permanent residency they may purchase all their fuel at the rebated
rate. They will be required to make and sign a Declaration that
zero percent of the fuel is for propelling purposes. It will be the
responsibility of the residential boat owner to ensure they hold
the requisite documentation should HMRC wish to check the validity
of the declaration made in these circumstances.
Continuous cruisers may not declare zero percent under these
arrangements, even if they reside permanently on their craft. They
must declare their actual intended usage.
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Further Information
The BMF is continuing to work with HMRC to provide guidance to
the industry as these new policy measures bed in. The BMF is
receiving many questions from member companies and will build a
Frequently Asked Questions section on the BMF website
Any enquiries about this guidance should be sent by email to
Claire Westbrook on cwestbrook@britishmarine.co.uk
HMRC are undertaking a briefing process for their National
Helpline and Regional staff. They have emphasised that during this
implementing period their emphasis will be on helping and advising
fuel supplier and users to get things right.
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