Red Diesel
Update Friday 12th September 2008
The BMF, RYA and IWA are pleased to provide an update on how the
end of the derogation will be implemented as of 1 November
2008.
Introduction
We have been working closely with HMRC since early 2007 to
produce a pragmatic and sensible solution to the implementation of
the end of the derogation. Prior to that, from 2003, we
successfully lobbied Government to seek the retention of the
derogation but this was rejected by the European Commission in
favour of its tax harmonisation agenda.
Once it was confirmed that the derogation had to come to an end,
our key concerns were to:
• Secure the continued availability of diesel at the
waterside
• Minimise the impact on the boater and industry
• Avoid safety and environmental implications of transporting
fuel by hand
In February of this year when HMRC published its outline
proposals we were pleased to see that our efforts had succeeded and
that all of these concerns had been taken into account,
particularly by allowing recreational boaters to continue to use
red diesel. Since then, we have been endeavouring to ensure that
the detail of HMRC’s proposals is as simple and effective as
possible.
Successful Co-operation
The BMF, RYA, IWA and HMRC all agree that it was disappointing
that the derogation was not renewed by the European Commission,
despite what we all considered to be a very strong case. We also
all agreed that the end of the derogation presented considerable
difficulties in terms of implementation. We are very pleased,
however, that the BMF, RYA, IWA and HMRC have been able to work
together successfully on behalf of the industry and recreational
boaters. HMRC has been very receptive to the concerns of suppliers
and users and has managed the consultation process well.
HMRC Conclusions
• HMRC accepted the overwhelming wish of both suppliers and
users that red diesel should continue to be available to
recreational boaters.
• The loss of the derogation will only affect fuel used for
propulsion, which will be subject to the full rate of duty.
• Red diesel at the rebated rate will continue to be available
for domestic purposes, such as heating and lighting.
How will it work?
1. When recreational boaters buy diesel for their craft,
they will need to make a declaration to the supplier if they intend
the fuel to be used for propelling a private pleasure craft.
2. The recreational boater will also declare what
percentage of the fuel will be used for propulsion (as opposed to
domestic purposes such as heating and lighting).
How will the boater work out what percentage of fuel
they intend to use for propulsion?
HMRC has understood our arguments about the potential
difficulties for fuel suppliers in calculating duty and VAT – in
particular for the smaller operators – when faced with customers
claiming different percentages of fuel used for propulsion. HMRC
also appreciates the concerns of users about the difficulty of
calculating and apportioning their own intended usage accurately
and their worries about unintentionally making an inaccurate
declaration. However, the EU Energy Products Directive specifically
refers to ‘fuel for the purposes of navigation’ (which is reflected
in UK law as ‘fuel for propelling’), so there is no legal basis for
imposing a single standard apportionment to be applied universally
that pays no regard to actual usage for propulsion.
HMRC has therefore confirmed to the BMF, RYA, and IWA
that their advice on this issue is as follows:
“Q. What will be the allowance for fuel used on boats for
heating and lighting?
A. There is no fixed allowance. It is for the purchaser to
declare the percentage of fuel used for propulsion. However,
analysis by both the industry and HMRC suggests that a split of 60%
for propulsion and 40% for domestic use (heating, cooking etc)
probably reflects most people’s use and it is therefore likely that
many users will declare such an apportionment. This will make
it easier for suppliers (RDCOs) to work out additional duty and
VAT. However, where a purchaser knows that their 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.
Q. What about residential boat owners where nearly all fuel is
for domestic purposes – what can they declare?
A. We have recognised the status of residential boat owners
whose primary residence is their boat. Some of these will be at
fixed moorings or move just a very short distance along the tow
path from permanent moorings. If they live aboard the craft
permanently and hold certain documentation, such as a Houseboat
Licence, Residential Mooring Licence, Council Tax Bill in respect
of the mooring, or other peripheral documentation, invoices or
bills which provides proof of permanent residency, they may
purchase all their fuel at the rebated rate (as if they were a
commercial vessel). They will still be required to make and sign a
declaration saying that 0% of the fuel is for propelling
purposes. It will be the responsibility of the declarant to
ensure that they hold the requisite documentation should HMRC wish
to check the validity of the declaration made in these
circumstances. Continuous cruisers may not declare 0% under these
arrangements, even if they reside permanently on their craft, they
must declare their actual intended usage for propulsion.”
Registered Dealers in Controlled Oils (RDCO) will need to
account to HMRC for the additional duty received from recreational
boaters. RCDOs already owe a general duty of care to ensure
that they only make supplies of controlled oil for legitimate
uses.
Further Information
We will continue to work with HMRC to provide support to
suppliers and users over the next few months. RYA and IWA will
provide guidance to their members and the BMF will offer an
information service for industry. HMRC has confirmed that it
will provide supplementary guidance to RDCOs and that its emphasis
as the new measures bed in will be to help and advise suppliers and
users to get things right.