The Finance Act 2021, a new piece of legislation that came into force in May 2022, reduced the types of vehicles and machines that are eligible to use tax exempt “red diesel”. This means that fuel duty is payable in more circumstances and that has given rise to disputes, particularly between parties to long term services contracts, about who should foot the bill.
We have seen a number of examples of this in the waste sector.
Many of the vehicles and machines typically used by waste providers – including those used to collect and process waste and resources – are no longer eligible to use red diesel (which is simply diesel dyed red so that illegal usage can be easily identified) and waste providers are having to pay more fuel duty as a result. Some providers have been looking to pass the increased costs on to their customers. The sums involved can be significant.
Local authorities
For local authorities with large waste and resources contracts, the first step is to check the terms of the relevant contract(s) as that will determine where liability for the increased costs sits. As the waste and resources collection and processing infrastructure and corresponding contracts differ across regions, the position will not always be the same in each case. However, the burden will usually be on the provider to demonstrate that they are entitled to a price increase and in our experience that may be difficult for them to achieve.
It’s worth remembering that a tax change like this, which moves more taxation onto the use of diesel, is designed to incentivise a switch to greener ways of operating in support of the UK government’s drive to reach net zero by 2050.
Local authorities and waste and resources providers with their own decarbonisation or net zero goals may wish to use this as a prompt to collaborate on ‘cleaning up’ operations – for example by switching to electric vehicle refuse trucks or decarbonising waste and resource processing facilities – in future contracts.
About Womble Bond Dickinson
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