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Diesel fuel is subject to a fuel duty levied per unit of fuel purchased, which is included in the price paid for diesel used in vehicles or for heating. The standard rate of VAT (20%) is then charged on top of the product price and the duty. In the UK, the fuel duty rate for diesel is 52.95 pence per litre, and it has been frozen since 2011-12. The use of 'rebated' red diesel, which has a 5% VAT rate, is restricted to specific industry sectors.
| Characteristics | Values |
|---|---|
| VAT rate on diesel fuel | 20% |
| Fuel duty rate on diesel fuel | 52.95 pence per litre |
| VAT on fuel duty | 10.59 pence per litre |
| VAT rate on marked gas oil (red diesel) | 10.18 pence per litre |
| VAT rate on liquefied petroleum gas | 28.88 pence per kilogram |
| VAT rate on natural gas used as fuel in vehicles | 22.57 pence per kilogram |
| VAT rate on fuel oil burned in a furnace or used for heating | 9.78 pence per litre |
| VAT rate on rebated red diesel | 5% |
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What You'll Learn
Fuel duty rates
In the UK, fuel duty is an excise duty levied on purchases of petrol, diesel, and other fuels. The rate depends on the type of fuel and is charged per unit of fuel purchased. As of 2022-23, the standard rate of fuel duty for petrol and diesel is 52.95 pence per litre, including a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26. This rate has been frozen since 2011-12. The duty on other fuels varies: marked gas oil (mainly off-road diesel) is charged at 10.18 pence per litre, liquefied petroleum gas at 28.88 pence per kilogram, natural gas used as vehicle fuel at 22.57 pence per kilogram, and fuel oil burned for heating at 9.78 pence per litre.
VAT (Value Added Tax) is applied in addition to fuel duty. The standard rate of VAT is charged on supplies of fuel and power unless they are eligible for a reduced rate under specific conditions. The reduced rate applies to certain qualifying uses of fuel and power, as outlined in VAT regulations.
The UK has the eighth-highest fuel duty on petrol and the joint-highest fuel duty on diesel among EU member states. Critics argue that high fuel duty rates cause economic damage and have negative impacts on consumption, production, and worker accessibility to jobs. However, fuel duty also serves as a significant source of government revenue and is expected to raise £24.4 billion in 2025-26.
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VAT on red diesel
In the UK, fuel duties are levied on purchases of petrol, diesel, and other fuels. The standard rate of VAT is applied to fuel and power unless they are eligible for a reduced rate.
Red diesel, also known as gas oil, is a type of diesel fuel that is used for a variety of purposes, including agriculture, rail transport, and non-commercial heating. It is typically dyed red to distinguish it from regular diesel fuel.
The VAT rate on red diesel has varied over time and depends on factors such as quantity and usage. As of April 2022, the use of 'rebated' red diesel with a 5% VAT rate has been restricted to a small number of industry sectors, including agriculture, horticulture, fish farming, forestry, and rail transport. Commercial deliveries of red diesel exceeding 2,301 litres are typically subject to a 20% VAT rate, regardless of purpose. On the other hand, deliveries of 2,300 litres or less for genuine domestic use may qualify for a reduced VAT rate of 5%.
It is worth noting that the UK government regularly reviews and adjusts fuel duty rates. For example, in March 2022, the Chancellor announced a reduction in fuel duty by 5p per litre until April 2023. Additionally, the government has stated that fuel duty will be uprated by RPI inflation in the future, although this has not occurred in the past decade. These changes can impact the overall cost of fuel, including red diesel, and businesses using red diesel should consider the potential impact on their operations.
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VAT on diesel for vehicles
In the UK, diesel fuel is taxed with two types of levies: fuel duty and VAT. The standard VAT rate on diesel is 20%, but it can be reduced to 5% for domestic heating fuel. However, it's important to note that VAT is applied after fuel duty, which means that the pump price of diesel reflects both the pre-tax price and the fuel duty, along with the VAT on the pre-tax price and the VAT on the fuel duty.
When it comes to vehicles, the rules for VAT on diesel become more nuanced. For example, if you use diesel for business travel in a company car or commercial vehicle, you may be able to reclaim all or a portion of the VAT. This is applicable for vehicles like taxis, driving instructors' cars, personal chauffeurs, vans, lorries, tractors, motorcycles, and more. However, it's important to note that the vehicle must be used solely for business purposes to reclaim all the VAT, and you must keep mileage records and fuel receipts to support your claims.
On the other hand, if you're using diesel for private purposes, such as fuelling your personal car, you generally cannot reclaim the VAT. In this case, the VAT becomes an additional cost that you bear as the end consumer.
It's worth noting that there are different types of diesel fuel, such as red diesel and white diesel, that have different duty rates and restrictions on their use. Red diesel, also known as gas oil or off-road diesel, is intended for limited permitted uses and attracts a lower rate of duty. It is dyed red to identify illegal use. As of April 1, 2022, regulations further restricted the specific purposes for which red diesel can be used.
VAT rates and fuel duty rates can change over time, and it's important to stay informed about the latest updates. For example, in March 2022, the duty rates for diesel were decreased by 5 pence per litre, resulting in an 8.63% reduction in the rate of duty.
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VAT on diesel for heating
In the UK, fuel duty and VAT are the two types of taxes levied on fuels. While fuel duty is automatically factored into the price of diesel, petrol, and other fuels used for vehicles or heating, VAT is added on top. The standard VAT rate for most fuels is 20%, while domestic heating fuel is taxed at a reduced rate of 5%.
The type of fuel and its usage determine the VAT rate applied. For instance, the reduced VAT rate of 5% applies to supplies of heating oil, including kerosene (ULSK) and red diesel (ULSG), for genuine domestic use, regardless of the quantity. However, for commercial deliveries of these fuels exceeding 2,300 litres, the VAT rate increases to 20%, irrespective of their purpose.
Red diesel, also known as gas oil or 'off-road diesel', is intended for specific permitted uses and is subject to a lower rate of duty. Its usage is legally restricted and dyed red to identify any illegal use. From 1 April 2022, regulation changes further limited the purposes for which red diesel could be used.
VAT rates on fuel can be subject to changes over time. For instance, from 6 pm on 23 March 2022 until at least March 2023, the VAT rate on petrol and diesel was reduced by 5 pence per litre, resulting in an 8.63% reduction in the duty rate. Additionally, the Autumn Budget 2024 brought a cancellation of the planned April 2025 RPI rise and an extension of the temporary 5p reduction in petrol and diesel duty rates until April 2026.
It is worth noting that VAT on fuel expenses can vary based on vehicle type and mileage allowance. Businesses and individuals may be able to reclaim VAT on fuel expenses for business trips or business-only vehicles, such as taxis, leased cars, or commercial vehicles. However, it is crucial to accurately maintain mileage logs and follow the guidelines provided by HMRC to avoid penalties for false or inaccurate claims.
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VAT on diesel for industry
Value Added Tax (VAT) is a tax on consumer spending, and it is included in the price of most products and services. VAT is charged at every stage of sale where the cost of an item is increased. The standard rate of VAT is 23%.
In the UK, VAT is applied to the price of fuel after fuel duty. The headline rate for standard petrol and diesel is 52.95 pence per litre, which has been frozen since 2011-12. This includes a temporary 5-pence cut introduced in 2022-23 and extended until 2025-26. The VAT on the pre-tax price of fuel is 20%, and there is an additional 10.59 pence for VAT at 20% on fuel duty.
The use of 'rebated' red diesel is subject to a reduced VAT rate of 5%. This reduced rate is restricted to a small number of industry sectors, including agriculture, horticulture, fish farming, forestry, and rail transport. Businesses in sectors such as construction, mining, quarrying, manufacturing, haulage, airport operations, and waste management are not eligible for this reduced rate.
Commercial deliveries of Kerosene (ULSK) and Red Diesel (ULSG) of 2,301 litres or more are subject to a 20% VAT rate, irrespective of the purpose of use. In cases where the reduced rate of 5% VAT is applied to quantities above 2,300 litres, the supplier must ensure that the supply is for domestic dwellings or specific types of residential accommodation eligible for the reduced rate.
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Frequently asked questions
The VAT rate on diesel fuel is 20%. However, the 'rebated' red diesel, which is used in limited permitted circumstances, has a VAT rate of 5%.
'Rebated' red diesel, also known as gas oil or off-road diesel, is used in limited permitted circumstances and is subject to strict legal requirements regarding its use. It is dyed red to identify illegal use. This type of diesel is typically used in sectors such as agriculture, horticulture, fish farming, forestry, and rail transport.
The VAT on diesel fuel is calculated as a percentage of the pre-tax price plus the fuel duty. For example, the pump price of a litre of diesel reflects the pre-tax price, plus the fuel duty of £0.5295 per litre, plus 20% VAT on the pre-tax price, and an additional 20% VAT on the fuel duty.
