Restrictions on rebated fuels – what you need to know

What's changing

From 1 April 2022 the government will be banning most sectors from using rebated fuels leading to increased fuel costs. We highlighted this in our blog last year.

Despite the concerns raised by many trade bodies, current market and additional costs caused by the Ukraine crisis, the government is continuing with the changes.

From tomorrow it will be illegal to put red diesel into the tank of a vehicle or machine which is not entitled to use it. The list of acceptable uses is narrow and includes use in the following sectors: agriculture, horticulture, fish farming and forestry. Construction is not one of the exempted sectors – meaning the restriction will apply and need to be considered.

Practicalities

Parties now need to ensure that the plant and equipment being used on site is filled with the correct fuel. If it is diesel, it must be white diesel.

If rebated fuel is found, you need to establish when it was added – if it was added after 1 April 2022 then it must be flushed out and replaced.

This means it will be important to check what fuel is being used before starting any operations, and make sure you keep fuel receipts and invoices to confirm when and what was used.

Whilst it is hoped HMRC will take a pragmatic approach, they do have the ability to issue fines and seize the piece of machinery in question.

Contractual considerations

As we mentioned before, contractual change in law provisions may offer some relief.

Under NEC it may be possible to argue (if X2 has been selected) that the change is a Compensation Event entitling the Contractor/Subcontractor to time and money. Such events must be notified on time; and we anticipate there will be arguments around whether the change in law occurred on 3 June 2021, when the Finance Bill 2021 became law, or on 1 April 2022 (which the change came into force), and when Contractors/Subcontractors "became aware of the event ".

The same arguments about when the change took place also apply to claims under JCT. The additional risk and ground for dispute under JCT is what entitlement there is to both time and money. This is because: (1) exercise by the government of its statutory powers is a Relevant Event, but not a Relevant Matter in the standard form; and (2) changes to statutory requirements only entitle the Contractor/Subcontractor to loss and expense where the new legislation necessitates an "an alteration or modification to the Works".

For existing contracts, it is also worth checking whether the contract includes any fluctuation provisions as these may offer a different route to recovery for the Subcontractor/Contractor.

In relation to new contracts being entered into, the restriction is something which needs to be taken into consideration during negotiations and priced for – as the above reliefs will not be available.

Some (temporary) relief to the increased costs

While the government has refused to delay the restrictions, the Spring Statement did offer some relief with the announcement of a 12-month 5p per litre cut to fuel duty. This reduces the higher fuel duty rate of 57.95 ppl on unrebated diesel to 52.95 ppl, but only until March 2023. Again, these changing costs need to be considered when pricing and negotiating longer project.