The Chancellor announced in the March 2020 budget that the UK would undergo a consultation period, which is now underway, around the tax treatment of red diesel and other rebated fuels.

Those operating off-highway construction machinery currently pay less tax, at just 11.14 pence per litre on diesel, than regular users (who pay 57.95 pence per litre). This subsidised diesel is dyed red to distinguish it from the standard rate product.

Despite the planned two-year implementation period, the impact for business owners, particularly SMEs, could be hugely detrimental and not long enough, especially for those who are on long-term frameworks with fixed pricing.

The agriculture sector, railways and where the red diesel is used to power non-commercial heating systems, such as in homes or places of worship, are expected to be exempt from the change.

Terry Lloyd, Paragon’s Head of Construction Finance, said: “We are concerned about the impact that these changes will have on our customers, despite the environmental benefits. For many businesses, there is a lack of or no available alternative fuels or construction machinery that use other energy sources, so it is likely that the increased cost will ultimately be passed onto the end customer.”

“The change is likely to be a reason why many companies will start updating their machinery and fuel consumption is already a big consideration when making these purchases.

“Businesses must be aware that if the changes do come into place and they still have stocks of red diesel after 1 April 2022, they could be subject to prosecution. However, the supply of fuel should not be impacted if things do change, as long as the Government ensures white diesel is as widely available as red diesel is now.”

The consultation period ends on the 1 October 2020, when it will be announced as to whether the axing of red diesel will take place in April 2022 however construction trade bodies are hoping to be able to delay any possible change until April 2023.