Changes in red diesel legislation: how does it affect your farm business and home?

HMRC and the Government have made changes to the rules surrounding usage of rebated fuels, the most common in the rural sector being red diesel.

The new rules came into effect in April 2022 and hopefully by now you should have implemented any changes needed to ensure correct usage in your vehicles and in the way you heat your home and business.

With the winter months drawing in and the cost of gas and electricity becoming astronomic, it’s important to know when you can use these fuels to keep warm.

As users of red diesel will already be aware, there are big tax savings to be made by using red diesel. However, users must comply with HMRC’s rules to avoid criminal sanctions for tax evasion which could be an unlimited fine and/or a prison sentence of up to 2 years.

What are the changes?

Farm vehicles

Before April 2022, any off-road vehicles could be run on red diesel. Now they can only be used for permitted purposes, rather than types of vehicle. A lot of non-agricultural industries will now be suffering as a result of this. The allowed uses are for vehicles and machinery used in agriculture, horticulture, fish farms and forestry.

Strictly speaking you need to be using these vehicles only in connection with red diesel the growing and harvesting of crops for consumption, fodder and fuel or for the rearing of animals. You are also allowed to use red diesel in your vehicle to carry out hedge cutting, snow clearing, gritting and any flood clean up. This means grandma’s old car that has been relegated to the farm’s run around cannot use red diesel anymore!

Heating farm buildings

As well as use in vehicles, the changes in legislation also affects heating. The guidelines state red diesel can only be used for “non-commercial premises”, such as a library, school, charity and place of worship. They even go so far as to suggest different heating systems if you have a split use between commercial and non-commercial areas.

We asked the Red Diesel Entitlement Team (‘RDET’) at HMRC to clarify the definition of non-commercial. Does it extend to ancillary buildings on a farm; warehouses, barns and gatehouses for example?

They confirmed you can use red diesel or other rebated fuels to heat your buildings provided the use of the building falls under the accepted uses as discussed above for agriculture, horticulture, fish farming and forestry.

Heating your farmhouse

Earlier this year we acted on the purchase of a property heated by red diesel and the RDET confirmed that using red diesel to heat your home is still allowed, but be prepared to fill out a ‘RDCO’ form if you are ordering more than 50 litres at a time (less than the capacity of a standard tank).

You will need to confirm you are using it legitimately and you must order over 3,500 litres in one order or 10,000 litres over a 12 month rolling period.

With the rising cost of living however, it may be worth looking into using Kerosene instead which is known for its winter performance and efficiency compared to red diesel potentially helping you save money in the long run.

How Moore Barlow can help

If you require legal advice on how this change of legislation affects your and your farming estate, please contact Charlotte Brackley, Senior associate. Or explore our wider legal services for those in the agricultural sector.