Spring Statement 2022: Fuel Duty Changes: costs set to rise by a factor of five for some, despite rate reductions!

Fuel duty rate changes will provide welcome reductions to fuel costs, however businesses using Red Diesel may still be subject to major increases in duty from 1 April 2022.

Fuel Duty Rate Changes

The 2022 Spring Statement has revealed that fuel duty will be reduced for a number of fuels with effect from 6pm on 23 March 2022.

Petrol and Diesel will see reductions from 57.95p per litre to 52.95p per litre.

Red Diesel will be reduced from 11.14p per litre to 10.18p per litre.

Changes have also been made in the form of a proportionate percentage cut (equivalent to 5p per litre from the main Fuel Duty rate of 57.95p per litre) in other lower rates and the rates for rebated fuels, where the government has deemed this practical.

As VAT is charged on the duty inclusive cost of the fuel, the change should also reduce the amount of VAT due at the time of sale.

A full table of fuel types and fuel rates has been published by HMRC here: https://www.gov.uk/government/publications/changes-to-fuel-duty-rates/fuel-duty-rates-2022-23

Red Diesel Entitlement Changes

While the base fuel duty rates have been cut, the Spring Statement has done nothing to alter changes to Red Diesel entitlement, which will drastically increase costs for some businesses.

From 1 April 2022 entitlement to use red diesel will be further restricted (for both vehicles and appliances) to those being used for a ‘qualifying purpose’ (primarily activities related to agriculture, horticulture, pisciculture or forestry with a few additional exceptions).

Red diesel used for heating or electricity generation will only be available for domestic homes and ‘premises that are not used for commercial purposes’.

Loss of entitlement has the potential to significantly increase operating costs across a wide variety of sectors, including manufacturing, construction, leisure, plant, mining, and logistics.

With the new rates announced today, any business that undertakes commercial activities not deemed ‘qualifying’ will find they will have to rely on ‘white’ fully taxed diesel subject to fuel duty at 52.95p per litre, rather than red (rebated) diesel at 10.18p per litre.

Businesses will need to ensure they are ready for this imminent change and may wish to consider the feasibility of using alternative sources of power.

If you have any queries regarding how fuel duty and red diesel entitlement changes, please do not hesitate to contact the Indirect Tax Team: VATadvice@francisclark.co.uk