Oil excise duties in the UK

In 2022 entitlement to use red (marked) diesel and rebated biofuels in the UK was restricted to the following qualifying purposes:

• For vehicles and machinery used in agriculture, horticulture, fish farming and forestry. This includes allowing vehicles used for agriculture to be used for cutting verges and hedges, snow clearance and gritting roads.

• To propel passenger, freight or maintenance vehicles designed to run on rail tracks.

• for heating and electricity generation in non-commercial premises; off-grid power generation; and non-propulsion uses on permanently-moored houseboats.

• For maintaining community amateur sports clubs and golf courses.

• As fuel for all marine craft refuelling and operating in the UK, except for private pleasure craft in Northern Ireland

• For powering the machinery of travelling fairs and circuses

The main responsibility is on the supplier of rebated oils who must verify that the buyer is entitled to use rebated oil. However HMRC has extensive powers to check, sample and measure for rebated fuels in vehicles or machinery. Vehicles and machines can be seized and penalties will be levied, in addition to payment of any duty due.

This regime marks a change and restriction of the previous situation, under which any vehicle used as a “road vehicle” had to use non-rebated fuel (sometimes called “white” oil), but any vehicle could use rebated fuel when not used as a road vehicle. The scope of the UK’s regime also extended in 2022 to levy fuel excise duty on biodiesel, bioblends and fuel substitutes used in heating: applying the rebated duty rate to non-commercial heating and the full rate of duty to commercial heating.

The Tied Oils Scheme

Separate from the above in the UK, including Northern Ireland, mineral oils can be relieved from excise duty, subject to conditions. This affects commercial users who need to be pre-authorised by HMRC but other than prohibition of use as fuel in vehicles and some other exceptions the exact use to which the oil is put is not widely constrained. In some cases access may be given to reduced rates of duty rather than full duty relief. This regime is known as the Tied Oils Scheme.

Tied Oils are:

• any light oils1

• heavy oils2 that fall into the excise definition of gas oil, fuel oil or kerosene

Tied Oils must also be:

• delivered and meet the conditions to get relief from excise duty, and

• put to a use that is eligible for relief from excise duty

All uses are eligible for relief unless the oil is used for:

• fuel for any engine, motor or other machinery (including use as extender or additive to motor fuel)

• heating fuel

Light oil used as furnace fuel in a vaporised or atomised form, may be eligible for a reduced (rebated) rate.

Some lubricating oils and hydraulic fluids are liable to excise duty if they meet the gas oil, kerosene or fuel oil excise definitions. HMRC allows relief for the oils if they are used for an eligible purpose. Oils which do not meet the definitions are not subject to excise duty.

Oil used in the testing and calibration of fuel systems where the oil is not combusted qualifies for relief under the Tied Oils Scheme. If the oil is burned in the course of the testing then it is not eligible for relief.

Unmarked kerosene used to manufacture firelighters and barbecue lighting fluid qualifies for the Tied Oils Scheme.

Light oil used as a furnace fuel to heat commercial premises can be supplied at a lower (rebated) rate of duty. The relief is available only to businesses using “significant” amounts of oil, and is subject to prior authorisation by HMRC.

Conclusion

Although the scope of rebated fuel use was restricted slightly in 2022 this does not significantly change the application or direction of the UK’s fuel excise taxation. In practice, certain users who used to receive rebated fuel must now be approved by HMRC in order to do so (subject to “significant use” restriction (the amount is undefined) for commercial heating oils).

Notes:

1. Hydrocarbon Oil Duties Act 1979 (HODA) s1(3) defines light oil as hydrocarbon oil:

(a)    of which not less that 90 per cent. by volume distils at a temperature not exceeding 210°C or

(b)    which gives off an inflammable vapour at a temperature of less than 23°C when tested in the manner prescribed by the Acts relating to petroleum.

2. HODA s1 defines these at (4), (5) and (8).