Latest brief from HMR&C on red diesel duty

HMR&C has issued (final) guidance on the operation of the new regime for duty on red diesel used on private pleasure craft for purposes of propulsion. The new regime comes into effect on 1 November 2008. The need for the new regime arises from the loss of the UK's derogation from the Energy Products Directive 2003/96.

The new scheme will rely on a written and signed statement by a purchaser of red diesel in the following form:

'I declare that [ ] % of the fuel purchased will be used for propelling a private pleasure craft'

The supplier will collect the duty from the purchaser and account for it to HMR&C. In principle it is only fuel used for propulsion of private pleasure craft which is affected by the new regime. The percentage will be 100 if the diesel is used soley for propulsion, although in many private pleasure yachts the main machinery, in addition to propulsion, will be used for generating electricity for storage in the vessel's batteries. There is no indication what split will be acceptable in this case, but HMR&C indicates that in the case of a private pleasure craft using red diesel for both propulsion and domestic purposes (heating and lighting), a split of 60:40 (propulsion:domestic use) seems to be a common experience.

The good news is that red diesel, irrespective of whether it is intended for use for propulsion or domestic purposes will attract VAT at the rate of 5% not the full rate of VAT at 17.5% which is charged on DERV for road use.

The new regime will involve greater form filling, but the expectation is that at present prices 100 litres of red diesel split 60:40 between propulsion and domestic purposes, would retail at just under £100.

The HMR&C statement is available from their website.