Red Diesel and European Legal Action

Issue date: 17th July 2013

IWA is concerned about a recent announcement by the European Commission challenging UK laws which currently allow leisure boaters to purchase red diesel.  This is despite the agreement made with HMRC in 2008 whereby boaters can purchase red diesel for propulsion whilst paying the standard rate of tax, with a form of self-declaration allowing a proportion of the diesel used for heating and lighting to be purchased at a lower rate of tax.  

The European Commission has formally requested the United Kingdom to amend its legislation to ensure that private pleasure boats can no longer buy lower taxed fuel intended for commercial boats. Under EU rules on fiscal marking for fuels, fuel that can benefit from a reduced tax rate has to be marked by coloured dye. Commercial craft are allowed to benefit from fuel subject to a lower tax rate but private boats must use fuel subject to a standard rate. The Commission's request takes the form of a reasoned opinion. In the absence of a satisfactory response within two months, the Commission may refer the United Kingdom to the EU's Court of Justice.

The announcement may mean the end of the use of red diesel for any leisure boating, with boatyards and fuel suppliers having to supply unmarked (white) diesel.  Whilst red diesel could continue to be used for heating, it would have to be in a separate tank, and there would be no dispensation for any proportion of fuel used by the engine for generating heat and light. Commercially operated boats would still be able to purchase and use red diesel, but this would require fuel suppliers and boatyards to have two separate tanks for the different fuels.

Historically, boat owners were able to purchase and use lower-taxed diesel marked with a red dye, otherwise used by the agricultural and construction industries, for pleasure boating. This changed in 2008 when a UK derogation from the Energy Products Directive (which permitted the UK to continue to levy a reduced rate of duty on motor fuel to be used for propulsion in private pleasure craft) ended.

At that time, IWA, Royal Yachting Association and British Marine Federation worked closely with HM Revenue & Customs to achieve a sensible arrangement of self declaration, whereby boaters are able to decide at the point of purchase what proportion of their diesel consumption is used solely for propulsion, and what proportion is used for heating and lighting.  

IWA has been aware of this latest threat since 2011 when the European Commission first threatened to open infringement proceedings against the UK Government claiming the UK was not adhering to EU directives on fiscal marketing, designed to prevent the improper use of certain petroleum products.  At that time Justine Greening, Economic Secretary to the Treasury replied to IWA that the UK Government continues to share IWA's view that the procedures operated in the UK comply with Directives and responded to the Commission accordingly. 

Advice was issued by HMRC in April 2012 concerning the use of red diesel on the continent and possible action by other countries against any visiting vessels found with marked red diesel in their fuel tanks.  At that time HMRC stated that there would be no change to the arrangements for the use of red diesel on inland waters in the UK provided the correct amount of duty has been paid.

IWA is concerned at the increased costs that will be faced by both boat owners and boatyard operators if this change is implemented.  Whilst accepting that any fuel used solely for propulsion should be subject to the higher rate of tax, IWA considers that it is unfair for boat owners to have to purchase fully taxed white diesel for heating and cooking.  

IWA is also concerned at the costs to boatyards and other fuel suppliers in having to install a new or second tank in order to be able to supply white diesel.  

IWA considers that it is simply not practical for most boats that use the inland waterways to have two tanks (and pumps) – one for red diesel and one for white; that inappropriate modifications would raise safety concerns; and that many diesel suppliers would not supply both red and white diesel. 

Fundamentally, IWA believes that the agreement reached in 2008 remains entirely consistent with the spirit of EU law and that the UK’s implementation in this manner therefore should not be regarded as an infringement.

IWA will continue to monitor the situation and make representations to the UK Government to resist pressures from Europe that would cause both additional cost and inconvenience to UK boat owners.