Rebate on heavy oil and certain bioblends used for heating
Published 22 November 2023
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This publication is available at https://www.gov.uk/government/publications/fuel-duty-for-heavy-oil-and-bioblends-used-for-heating/rebate-on-heavy-oil-and-certain-bioblends-used-for-heating
Who is likely to be affected
Businesses that supply or use fuel to provide heating for premises used for commercial purposes.
General description of the measure
This measure amends a minor anomaly that prevents excepted machines from using certain rebated heavy oil and bioblends for commercial heating.
Policy objective
This measure reverses the exclusion from the list of ‘excepted machines’, that can use rebated fuel since 1 April 2022, of machines and appliances that use heavy oil (other than gas oil), or bioblends that do not contain gas oil, for commercial heating.
Background to the measure
At Budget 2020, the government announced that it would remove the entitlement to use rebated gas oil (diesel) and biofuels from most sectors to help meet its climate change and air quality targets. The changes took effect from April 2022 and ensure that most users of rebated gas oil prior to April 2022 are now required to use fully duty-paid fuel, as motorists are, which more fairly reflects the harmful impact of the emissions they produce.
As part of these reforms, the government decided to continue to allow rebated heavy oils (other than gas oil) such as kerosene, and rebated bioblends that contain them to be used for all heating uses. This was due to a concern that removing entitlement to use these fuels for this purpose would significantly increase the heating bills of households and businesses that use them, especially in areas off the gas grid.
Paragraph 8(1)(e) of Schedule 1A to the Hydrocarbon Oil Duties Act 1979 (HODA) designates machines and appliances that use kerosene for any heating as excepted machines, but it does not apply to machines and appliances that use other types of heavy oil (other than gas oil) or bioblends that contain them. This was not the government’s intention. The April 2022 changes were intended only to restrict the use of rebated gas oil and biofuels, while the tax treatment of other heavy oils, including fuel oil and bioblends that do not contain gas oil, would remain the same.
Fuel oil is mainly used in ships’ engines, but is also suitable for use in some commercial heating applications, such as in furnaces. Vessels other than private pleasure craft are excepted machines so are not affected by this change.
Detailed proposal
This measure will extend the provision in paragraph 8(1)(e) of Schedule 1A to HODA to allow machines or appliances that use any heavy oil other than gas oil, or bioblends that do not contain gas oil, to benefit from the rebate when used for any heating purpose.
Operative date
This measure will have effect from the date of Royal Assent to Autumn Finance Bill 2023.
Current law
HODA is the UK’s primary legislation on the taxation of hydrocarbon oils. It defines the different types of oils and provides for the rate of fuel duty charged on each, the rebate allowed on certain types of oil, and the penalties for misuse of rebated oils.
Schedule 1A of HODA specifies the circumstances in which certain vehicles, vessels, machines and appliances are ‘excepted machines’ that can use rebated fuel rather than fully duty-paid fuel.
Proposed revisions
Autumn Finance Bill 2023 will amend HODA. This change will be:
A change to HODA, Schedule 1A, paragraph 8(1)(e) to provide that a machine or appliance may use heavy oil other than gas oil, or bioblends that do not contain gas oil, for fuel when it is being used for heating for any premises.
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Negligible | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is not expected to have any further impacts on individuals beyond those already identified in the reform of red diesel entitlements.
Customer experience is expected to remain broadly the same as this measure does not present any further changes to individuals.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure is not expected to have adverse impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
The measure is expected to have a negligible impact on a small number of businesses. This measure will effectively allow them to return to systems they operated before April 2022.
There will be a one-off transitional cost for users and suppliers to familiarise themselves with the new rules but as most will be effectively returning to systems they operated before April 2022 this will be minor.
There are not expected to be any continuing costs.
Customer experience is expected to remain broadly the same as this measure does not present any further changes to businesses.
This measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
This measure is not expected to have any operational impact beyond those already identified at Budget 2021 in the reform of red diesel entitlements.
Other impacts
Other impacts beyond those already identified in the reform of red diesel entitlements have been considered and none has been identified.
Monitoring and evaluation
The measure will be monitored through information collected from fuel duty receipts of rebated fuels and fully duty-paid fuels and by communicating with affected sectors no longer entitled to use rebated fuels as well as developers of greener alternatives.
Further advice
If you have any questions about this change, please contact the Oils Policy Team by email: oils.policymail@hmrc.gov.uk.