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HMRC internal manual

Hydrocarbon Oils Strategy

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HM Revenue & Customs
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Post detection audit and assessment: Appendix E: misuse involving 'mixtures' of fuels and additives (up to 1 April 2008)

 

Introduction

This appendix covers the situation for any misuse committed up to 1 April 2008 and provides guidance on how to deal with cases involving the misuse of mixtures and additives until that date.

Some of the scenarios outlined below are modified by the Duty Rates Simplification introduced in the Budget 2008, when the Hydrocarbon Oil Duties Act 1979 is amended by the Finance Act 2008.

Note: Any change(s) which need to be taken into account post 1 April 2008 are shown in associated footnote(s).

Duty rates simplification

  • The 3 existing duty rates for heavy oil (diesel) ie heavy Oil which is not Ultra Low Sulphur Diesel (ULSD) or Sulphur Free Diesel (SFD) Diesel Engined Road Vehicles (DERV), ULSD and SFD were reduced to one new combined rate, ie for heavy oil.
  • The 3 existing duty rates for light oil (petrol) ie unleaded petrol that is not Ultra Low Sulphur Petrol (ULSP) or Sulphur Free Petrol (SFP) ULSP and SFP were reduced to 2, ie leaded and unleaded petrol.
  • A new rebated rate of duty was introduced on biodiesel and bioblend used other than for road vehicles.

The major change post 1 April 2008 is that there are no longer separate duty rates for the full heavy oil rate, ULSD and SFD, instead there will be one new ‘combined’ heavy oil duty rate.

This means that in some cases there will no longer be a need to differentiate between the different fuels or additives in any mix, as they will share the same full heavy oil duty rate.

There is also a need to take account of the Duty Simplification and changes in Duty Rates on 1 April 2008 when drawing up any schedules in support of an Excise Assessment.

This guidance is not intended to be exhaustive. Instead it is intended to cover only the most likely scenarios you might encounter when carrying out a Post Detection Audit or when issuing an assessment for cases involving the misuse of a mixture of fuels and additives as road fuel.

For advice on how to deal with any other mixtures which have not been dealt in the scenarios, or for further information on the mixtures given here, please contact the Oils Policy Team in Indirect Tax.

Prior to 1 April 2008

1. ULSD / SFD and Marked Rebated Kerosene (MKO) mix

  • Offence is under Sec 12(2) HODA 1979.
  • Power to assess is under Section 13(1A) HODA 1979.
  • The duty is assessed at the full rate.

There should be no requirement for a Laboratory of the Government Chemist (LGC) test result as the assessment is issued on the misuse which is calculated as the shortfall between legitimate fuel purchased and the fuel required at the heavy oil rate.

The MKO has been used either to stretch the ULSD / SFD or instead of the ULSD / SFD.

2. ULSD / SFD and UK marked rebated Gas Oil (MGO) mix

  • The offence is under Section 12(2) HODA 1979.
  • Power to assess is under Sec 13(1A) HODA 1979.
  • The misuse is calculated as the difference between legitimate fuel purchased and the fuel required.
  • The duty is assessed at the full heavy oil rate (footnote 1) less the amount of excise duty already deemed paid on the UK MGO.

Once again, there should be no need for an LGC test note.

3. UK MGO and MKO mix

  • Offence is under Sec 12(2) HODA 1979.
  • Power to assess is under Sec 13(1A) HODA.
  • The misuse is calculated as the difference between legitimate fuel purchased and fuel required.
  • The duty on MKO is assessed at the full rate (footnote 1).
  • The duty on UK MGO (‘Red Diesel’) is assessed at the full heavy oil rate with a deduction on the amount of duty already paid on the UK MGO (footnote 2).

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

  • The power to charge duty on a Fuel Substitute, Additive or Extender which is not hydrocarbon oil, biodiesel, bioblend, bioethonol or bioethanol blend is given in Section 6A HODA 1979.
  • The power to assess for duty on an Additive which is not a hydrocarbon oil and which is used as a road fuel is given under Section 12(1) of the Finance Act 1994.
  • Duty is assessed at the rate applicable to the type of engine in which the fuel is used (Regs 4 and 5 of the Other Fuel Substitutes (Rates of Excise Duty etc) Order 1995 - SI 1995/2716).

8(a). Where Additives have been mixed with duty paid ULSD / SFD

On the basis we have no reason to believe the ULSD / SFD is not UK duty paid:

  • Duty is to be assessed on the additive in relation to any shortfall between legitimate purchases and the fuel used, charged at the SFD duty rate (footnote 1).
  • The Assessment need only be issued under the legal vires for ‘additives’.

8(b). Where Additive(s) have been mixed with UK MGO ( for use in a diesel road vehicle)

  • Duty is due at the SFD rate (footnote 1) on the proportion of the mix represented by the additives and also on the difference between the full heavy oil duty rate and the amount of rebate paid on the proportion of the mix represented by the UK MGO (footnote 4).

There are 2 offences with differing legal vires:

  1. the setting aside for chargeable use of the additive without payment of duty, and
  2. the misuse of the rebated MGO.

The trader must be advised of both offences in the assessment letter. In addition to quoting the legal vires for ‘additives’, this should also quote

  • Misuse of UK MGO (‘Red Diesel’) is under Sec 12(2) HODA 1979
  • Power to assess is Sec 13(1A) HODA 1979

8 (c). Where Additives have been mixed with MKO ( for use in a diesel road vehicle)

  • Duty is due at the SFD rate on the proportion of the mix represented by the additives and also at the full heavy oil duty rate on the proportion of the mix represented by the MKO (footnote 5).

Again there are 2 offences with differing legal vires:

  1. the setting aside for chargeable use of the additive without payment of duty, and
  2. the misuse of the rebated MKO.

The trader must be advised of both offences in the assessment letter. In addition to quoting the legal vires for additives (see 8 - Legal vires, 2nd bullet point - above), this must also quote the legal vires for misusing UK rebated oil.

  • Misuse of MKO is under Sec 12(2) HODA 1979
  • Power to assess is Sec 13(1A) HODA 1979

8 (d). Where Additive(s) have been added to ROI MGO (for use in a diesel road vehicle)

  • Duty is due at the SFD rate on the proportion of the mix represented by the additives and also at the full heavy oil duty rate on the proportion of the mix represented by ROI MGO (footnote 5).

There are 2 offences with differing legal vires:

  1. the setting aside for chargeable use of the additive without payment of duty, and
  2. the importation of the fuel without payment of duty.

The trader must be advised of both offences in the assessment letter. In addition to quoting thelegal vires for additives (see 8 - Legal vires, 2nd bullet point - above), this must also quote the legal vires for importing fuel without payment of duty.

  • Misuse of ROI MGO (‘Green Diesel’) is under Sec 6 (1a) HODA 1979.
  • Duty Point is under Regulation 4(1) of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992.
  • Power to assess is under Sec 12 (1A) Finance Act 1994.

Note: Each of the above scenarios assume that there has been a constant mix ration over the period being assessed.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Footnotes

Footnote 1 - Post 1 April 2008 the duty will be assessed at the new ‘combined’ heavy oil rate.

Footnote 2 - Post 1 April 2008 duty on UK MGO will be assessed at the new ‘combined’ heavy oil rate with a deduction on the amount of duty paid on the UK MGO.

Footnote 3 - Post 1 April 2008 the ROI MGO will be assessable at the new ‘combined’ heavy oil rate and the UK MGO ‘Red Diesel’ at the same rate less an allowance for the UK excise duty already paid on the fuel.

Footnote 4 - Post 1 April 2008 duty is due on the difference between the new ‘combined’ heavy oil rate and the amount of rebate paid on the proportion of the mix represented by the UK MGO.

Footnote 5 - Post 1 April 2008 duty will be due on both the Additives and either the MKO or any ROI MGO at the new ‘combined’ heavy oil rate and there will be no need to differentiate between the components in the mixture.