A leading accountancy firm has won a landmark tribunal decision for the agricultural industry allowing farmers to continue to use heavily rebated fuel in their tractors.
The agricultural industry is celebrating after a Tribunal made the ruling that will allow farmers and those associated with the agricultural industry to continue to run larger tractors on public roads using ‘red diesel’ rather than white for the purposes of agriculture .
Farmers taking their stock to market in the newer and more popular Fastrac type tractors can do so using the cheaper fuel without incurring financial penalties from HM Revenue & Customs (HMRC) and incur the possible impounding of their vehicles.
Until now, people connected with the industry have regularly fallen foul of HMRC‘s complicated guidelines that defined which journeys could be classed as being of agricultural use – and therefore which could be fuelled using red diesel.
The test case was brought by accountancy firm Armstrong Watson in response to the struggles endured by one of their clients - a Lockerbie-based land drainage company working on agricultural land.
Customs officials had accepted that land drainage constituted agricultural work, and said that the tractor and digger being used to dig the drains on the farm land could use red diesel for that purpose. However, HMRC took issue with the firm taking the digger on a trailer hauled by a large Fastrac tractor from their depot to the farm.
Officials said the journey from the depot to the farm and back was not for the purposes of agriculture, but was instead general haulage, which meant the firm did not qualify to use the cost saving red diesel for that section of the journey.
Armstrong Watson took the case and HMRC to a VAT and Duties tribunal - an independent body headed by a QC - in Edinburgh.
In a landmark decision which confirms current practise in the farming industry, the tribunal agreed that the journey to and from the yard was indeed part of the land drainage process and therefore “necessary for the purpose of agriculture”.
This meant that the firm’s Fastrac tractor – a large four-wheel-drive tractor - could use red diesel, rather than the more expensive white diesel. The panel also formally classified the large vehicle as a tractor for agricultural use.
The ruling means farmers using four-wheel drive tractors to take livestock to market can now continue to do so using red diesel.
Ian Fleming, one of Armstrong Watson’s VAT consultants, said: “It’s an important decision that will mean significant savings for a lot of people connected with the agricultural industry.
“If the ruling had gone the other way with the Tribunal ruling that Fastrac tractors were not tractors as defined by the law, with the journey to the farm being constituted as haulage, all farmers taking livestock to market would have their journeys re-defined as ‘haulage’. They wouldn’t be able to use the red diesel powered tractor and trailer and would have to use white diesel, which would be financially prohibitive and have a major financial impact on the industry as a whole.”
Red diesel is currently taxed at 4.22p/litre, white diesel at 53.27p/litre, and Ultra Low Sulphur diesel at 47.10p/litre. The penalties for breaching the rules over the use of red diesel can be severe. Civil penalties range from £250 to £500, plus possible seizure of the tractor and an assessment for back duty on the difference between the red and white diesel duty rates for the period of misuse.
HMRC have already started a process to change the law to make the use of red diesel in such circumstances illegal. But until this happens, the agriculture industry can continue to use red diesel with the cost savings that accrue.
