BMF Guidance on Red Diesel - UPDATED 01/11
Introduction
This guidance is intended to assist
companies who supply fuel to private pleasure craft to implement
the changes that took 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 is available to
RDCO’s 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.
It is important that
RDCO’s which supply fuel to private pleasure craft start charging
and collecting duty from 1 November 2008 and keep records of the
supplies and duty due.
Details of the methods of
payment, addresses and account number will be published in a public
notice.
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Example
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 70 pence per
litre (ppl) which includes 11.33 ppl duty already paid to fuel
supplier):
Propulsion calculation (i.e.
60%)
60 litres @ 70 ppl =
£42.00
60 litres @ 46.81 ppl =
£28.09 (additional duty)
Propulsion
Total = £70.09
Domestic calculation (i.e.
40%)
40 litres @ 70 ppl =
£28.00
Sub Total: £98.09
VAT at 5% =
£4.90
Transaction
Total =
£102.99
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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
Suppliers 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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Hire Boats/Day Boats
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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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Bareboat Charter
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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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Skippered Charter
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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.
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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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Yacht Delivery
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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.
Any enquiries about this
guidance should be sent by email to Claire Westbrook on cwestbrook@britishmarine.co.uk
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