From the 1st November 2008 red diesel continues to be available to recreational boaters albeit fuel used for propulsion will be subject to the full rate of duty whilst fuel for domestic purposes e.g. heating, lighting etc will continue to be at the rebated rate.
Boat owners engaged in commercial boat operations e.g. yacht charters and deliveries will continue to purchase fuel for propulsion at the rebated rate.
The new system works as follows for leisure boat owners. A written declaration is made to the vendor before purchase stating the percentage of marine fuel used for propulsion the balance as a percentage for domestic use. HMRC and the industry suggest a split of 60% for propulsion and 40% for domestic use, but the apportionment split is purely down to the owners intended usage and a level of honesty is required. After all HRMC may review the situation if the system does not work.
The wording prescribed by HMR&C for this declaration is:-
“I declare that [ ] % of the fuel purchased will be used for propelling a private pleasure craft” and then the owner will be asked to pay the full rate of duty on the declared proportion of the fuel purchased. The vendor may also have a form to complete. Once the declaration is made there is nothing more to do.
HMRC have confirmed that VAT is charged at the reduced rate of 5% on fuel for propulsion and domestic use. A worked example is given below
This example assumes a 60% (propulsion) and 40% (domestic) split for a purchase of 100 litres of red diesel (the price of diesel is assumed to be 0.70ppl which includes 9.69ppl duty already paid to fuel supplier):
Propulsion calculation (i.e. 60%)
- 60 litres @ 0.70ppl = £42
- 60 litres @ 0.4066 = £24.40 (additional duty)
- VAT @ 5% = £3.32
- Propulsion Total = £69.72
Domestic calculation (i.e. 40%)
- 40 litres @ 0.70ppl = £28
- VAT @ 5% = £ 1.40
- Domestic Total = £29.40
- Transaction Total = £99.12
Don’t forget to keep invoices on board if travelling abroad on your boat where legislation for marine red diesel consumption can be different.
Overall the industry has welcomed this new system which has helped to alleviate major worries from leisure boat owners and the U.K. boating industry as a whole. Now let’s see if both U.K. boat owners, fuel suppliers and the HRMC can make the system work.
