A plant hire company has successfully challenged HM Revenue and Customs over value added tax on red diesel, a decision its trade association has said could have far-reaching consequences for the industry.
Glasgow-based GAP Group appealed HMRC’s decision to tax red diesel in its plant machinery from March 2017 to March 2020 at a 20% VAT rate, as if the diesel and the plant were a single supply.
GAP argued that the red diesel should have been classified as an independent supply for tax purposes, with the VAT rate reduced to 5 per cent.
Anne Scott, a judge at Scotland’s top court, ruled in November that supplies of red diesel from GAP and the GAP plant should be classified as separate supplies for VAT purposes.
HMRC confirmed it would not be appealing the decision.
Chairman of the Scottish Plant Owners Association (SPOA), John Sibbald, welcomed the decisions and said: “The SPOA is grateful to the member GAP group for their actions in both bringing this case against HMRC as to highlight this problem in the plant rental industry.
“I urge all plant hire companies to take specific advice from tax experts if they are concerned about the level of VAT that applies to fuel.”
From 1 April 2022, the construction sector can no longer use red diesel. The measure was introduced by the government in the 2020 budget, as part of the country’s effort to meet its legally binding net zero targets. Some other industries, such as agriculture and forestry, may still use it.
Red diesel is the same as white diesel used in cars, but taxed at a much lower rate of 11p per liter (compared to 53p per litre). It is dyed red to help tax authorities track its use and prevent it from being used on road vehicles.
Sibbald said: “We are lucky to have a member who has the resources to make an appeal of this magnitude.
“The reality, however, is that many of our members are SMEs [small and medium-sized enterprises] and have simply followed the very limited and in some cases misleading guidance available.
“As a result, they could very easily have it [been] charge VAT at the wrong level.”
