‘Red’ diesel rebate to be scrapped for construction sector from April

With the construction industry already being tested by labour shortages and rising material costs, the upcoming abolishment of the red diesel rebate is yet another unwelcome challenge facing companies and contractors up and down the country.

As of 1 April 2022, red diesel – which is standard white diesel treated with a dye to indicate it is rebated and, therefore, subject to a lower rate of tax – can no longer be used legally to fuel construction plant and machinery, such as bulldozers and cranes. Instead, companies will have to either change their current equipment to machinery which runs on alternative power such as electricity or hydro-treated vegetable oil (HVO), or switch to standard white diesel; either way, the increased financial burden of this is considerable and has the potential to have catastrophic consequences on those businesses already battling to survive.

To put this into perspective, white diesel is currently taxed at 57.95 pence per litre, whereas red diesel, thanks to the rebate, is taxed at an effective rate of just 11.14 pence per litre. Those forced to switch from red to white diesel are, therefore, bracing themselves for a five times increase in fuel duty.

This issue is set to not only affect those operating this type of machinery on site, but also hirers and contractors who supply this equipment to construction firms who may well see demand plummet over the coming months.

While the reasoning behind the removal of the rebate, which was first announced during the 2020 Budget, is aimed at accelerating the switch to more environmentally friendly alternatives, many within the industry feel the switch is premature and poorly timed.

As companies run down their stocks of red diesel in preparation for the change, thought must turn to how this additional expense will be absorbed and factored into already escalating operating costs. Begbies Traynor can help assess how the changes will affect cash flow, and explore the options for restructuring or refinancing the business to help ensure these rising costs are managed as well as possible.

To find out more about how we can help you help your clients, contact your local Begbies Traynor partner.