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The removal of derogation on red diesel for leisure boat users is a complex and emotional subject to most recreational boat anglers.  Predictably, it is capable of generating more heat than light.

How it will apply to charter boat operators is yet another aspect deserving some detailed answers.

You can read here the briefing sheet for Members of Parliament, prepared and released by the Royal Yachting Association, which thoroughly explains what is to happen.

Below that, on this page, you can read an extract of the relevant legislation, gleaned from the Professional Boatmen's Association web site, which thoroughly explains its effect on commercial boat operators, who will be largely exempted.  They pay the duty then claim it back again.


M.P’s Briefing

The Issue

The Council of the European Union has adopted a Directive (2003/96/EC of 27 October 2003) restructuring the community framework for the taxation of energy products. Previous Directives (92/81/EEC, 92/82/EEC, and 97/425/EC) specify minimum levels of excise duty that Member States must apply to mineral fuels. Reduced rates of duty may be applied to diesel fuel used for specific purposes, such as the sale of diesel fuel to commercial craft, including fishing craft. In the UK this fuel is known as 'red diesel'.

Derogations from these Directives permit the UK and four other Member States (Belgium, Ireland, Finland and Malta) to allow private pleasure craft to use diesel fuel on which duty has been charged at the reduced rate. Consequently, in the UK, owners of private craft may currently purchase 'red diesel'. This derogation is due to expire on 31 December 2006, and if it is not renewed private recreational boat owners will not be able to purchase red diesel after this date.

If the derogation is not renewed the cost of waterside diesel used by leisure craft (if available) will increase threefold overnight in the UK, from the current 30p-40p per litre to an estimated 95p-105p per litre. Although one of the Directive's primary purposes is to reduce distortions in the internal market caused by differences in the levels of taxation applied to fuels and electricity, there are serious concerns that it may have the opposite effect if it is applied to marine fuel in the UK.

There is serious concern, supported by recent research, that this dramatic increase in the cost of boating will lead to a decline in participation. This will have a detrimental impact on the industry that serves the boating and watersports markets, which in turn will give rise to significant concerns regarding safety at sea and inland. There will be an impact on jobs and tourism, with little or no gain to the Exchequer.

Red Diesel and the UK Boating Market

Annual research undertaken by BMF/RYA/Sunsail indicates that 4 million people (2004 study) regularly participate in boating and watersports on UK coastal waters and inland waterways. A significant sector of industry has developed to serve the needs of this growing market. Marinas and boatyards, both on the coast and inland, along with inland hire fleets contribute significantly to UK tourism.

The lower cost of red diesel has certainly benefited the boating market and assisted the growth of the industry. The origins of this benefit are not clear but it is believed that it goes back to the 1930’s post war years. The modern day derogation is enshrined in European Directive 2003/96/EC, and applies to private recreational craft only. Owners of commercially operated craft are not affected and will still be able to purchase and use red diesel.

Waterside marinas and boatyards typically have only one (red) diesel pump to serve the needs of their customers and visiting boats. If the derogation is removed, these waterside businesses will no longer be able to supply red diesel to their leisure customers and leisure boaters will need to use ultra low sulphur diesel (ULSD), the same diesel product that is available from high street petrol stations. Petroleum companies will not be creating a new type of marine diesel for private recreational use. This will have significant infrastructure, supply and competition issues for waterside businesses and create issues of safety if waterside diesel decreases.

The sudden loss of this derogation in December 2006 will have negative impact both socially and economically. A full briefing document has been prepared which sets out the potential impacts of the loss of the derogation on:-

            • a popular sport and recreation

            • a successful sector of UK industry

            • UK Tourism

            • safety

            • Inland Waterways

            • Government policies

Your Help is needed

If the current derogation that provides for a lower rate of duty on red diesel used for marine leisure purposes expires on 31 December 2006, it will have significant consequences for a great many UK citizens who enjoy their sport and recreation afloat or earn their livelihood from the leisure marine industry. In addition, there will be significant safety issues if the derogation is lost.

The derogation should not be viewed as a subsidy for very affluent people who own large boats. This high value sector of the market is important to wealth creation and is internationally mobile. This is borne out by the fact that the UK’s largest power boat builders export in excess of 90% of their output. The derogation is a domestic market issue. Research conducted by the BMF/RYA/Sunsail demonstrates that boating in the UK is a middle-income family pursuit. The reality is that it will be the family that may have saved for many years to achieve their dream of owning a boat, who will be priced off the water.

We do not believe that there will be an overall net gain to the Exchequer if the derogation is removed. The potential for any increase in duty revenues will be negated by the loss of other taxes if participation in boating and related discretionary spend reduces and marine businesses face a downturn.

John Healey MP, as the Financial Secretary, will be the Minister responsible for taking a decision during the autumn of 2005 on whether the UK should fight to retain this derogation. We would welcome your help in ensuring that the Minister fully understands the implications for UK boat users and business interests if the derogation

Quoted verbatim from the Royal Yachting Association Web Site 28th December 2006


Red Diesel

This page is intended to give members some re-assurance about the European Governments decision not to renew the derogation on Red Diesel for the UK from the end of this year.

It is intended to stop Private boat owners from using red diesel and is not intended to adversely affect commercial operators.

If you browse the Customs & Excise website about fuel duty for use on marine voyages, you will find the following info which I have copied below for you.

If you want to view HM Customs document in its entirety click here


You can buy "red diesel" at quaysides, marinas and on inland waterways.  "Red diesel" is gas oil that has been chemically marked and dyed to show that it has borne a rebated (reduced) rate of excise duty because it must not be used in road vehicles.  Red diesel is much cheaper than road fuel sold at a garage forecourt, so we do not expect you to claim for refund of duty on road fuel.  If you do, we may delay repayment of duty on road fuel while we verify that you did use the oil in your vessel.

If you need to know the duty rates you should use to make your claim, please contact the National Advice Service (the address and telephone number is shown on the inside cover of this notice).

What is an "eligible vessel"?

An "eligible vessel" is any vessel that you use on a marine voyage, including hovercraft, but not private pleasure craft. EC legislation (Article 14 (1) (C) of Directive 2003/96/EC) defines "private pleasure craft" as:

"...any craft used by its owner or the natural or legal person who enjoys its use, either through hire or through any other means, for other than commercial purposes, and in particular, other than for the carriage of passengers or goods or for the supply of services for consideration or for the purposes of public authorities".

So, if you use your vessel for pleasure use, or you hire it out and the hirer uses it purely for pleasure, you cannot claim relief on the fuel used for the voyage. However, you can claim relief for fuel used in pleasure craft in some circumstances and we explain this in more detail in the following paragraphs.

If your vessel is a commercial vessel and you use it on a marine voyage then it is an "eligible vessel" and you can claim relief. For example, if you operate one of the following types of vessel, you would be eligible to claim relief on the fuel used, as long as you comply with the other requirements of this notice:

  • foreign-going commercial vessels;
  • coastal vessels;
  • dive boats;
  • UK fishing boats;
  • foreign-owned fishing boats refuelling in the UK;
  • ferries, lighters, pilot boats, tugs, tenders and other similar vessels;
  • certain safety/rescue vessels - see Section 2.4;
  • vessels undergoing trials (but not basin or dock trials whilst stationary, ie not "engaged on a voyage");
  • hovercraft; and
  • passenger vessels used for pleasure trips - see Section 2.5.

This list is not exhaustive and you may qualify for relief even if your vessel is not listed above. If you are in any doubt, please contact the Mineral Oil Reliefs Centre whose address and telephone number are on the inside cover of this notice).

Which oils can I claim relief on?

You can claim relief on:

  • heavy oil, eg gas oil, fuel oil; and
  • light oil, eg petrol;

So as you can see, whether you burn red diesel, white diesel, kerosene or even petrol it makes no difference, you just claim back the extra duty.

Yes admittedly a lot more duty.  You will need to claim more frequently than you do at the present time unless you can afford to leave large sums of your income sitting in the Customs & Excise bank account!

Quoted verbatim from the Professional Boatmen's Association Web Site 28th December 2006

The Customs & Excise Legislation explains that if a commercial operator hires boats without crew as a business, then the boat is simply treated as a leisure craft and is not exempted from the higher range of duty.  This is the situation as it will apply to unaccompanied charters.

If a commercial operator hires his craft either to a party, or to individuals, and they are taken on a trip by a crew (could be just a Skipper), then that business is exempted from the higher rate of duty by Section 2.5.

I trust this will offer the best explanation I can find of the precise situation.

Item Updated 28th December 2006