Penalties for using red diesel

New penalties came into force on 1st April 2010. The new penalties are a percentage of the potential lost revenue to the Exchequer. Penalties range from 10% of the lost revenue to 100%, depending on how much help is given to HM Revenue and Customs and the intent of the offender. They are significantly higher for people who deliberately try to avoid paying the right amount of tax in order to gain an unfair advantage.

A very important aspect of the penalties is that anyone running a business can be penalised if an employee or advisor commits what is referred to as "wrongdoing" - if they, for example, use red diesel bought for legitimate use (in farm machinery etc.) in their own car.

The penalty can be avoided if the business can show that it has taken reasonable care to avoid this by, for example, setting up procedures to prevent the wrongdoing.

Under the new law, Schedule 41 of the 2008 Finance Act, company directors and company secretaries can also become liable for a penalty if they gain personally from a deliberate wrongdoing through the company.

Mike Eland, Director of Enforcement and Compliance at HM Revenue and Customs said:

"We aim to support people who take care to pay the right amount of tax. Part of that support is to come down hard on those who deliberately evade paying. These new penalties are tougher and more consistent. Defrauding excise is not worth the risk."

The penalties will apply where someone:

  • Handles goods on which excise duty has not been paid or deferred;
  • Uses a product in any way that means more excise duty should have been paid; or
  • Supplies a product at a lower rate of excise duty knowing that it will be used in a way that means a higher rate of duty should have been paid.

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