http://www.biofuel-uk.net/forum/viewthread.php?tid=133 OFFICIAL from HMRC on SVO rate
Hi biofuelers
HMRC have finally agreed to accept svo on the lower biodiesel rate
Chug:bandit
for HMRC webpage
CLICK HERE
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REVIEW OF THE DEFINITION OF BIODIESEL IN
HYDROCARBON OIL DUTIES ACT 1979: SUMMARY OF
RESPONSES AND FINDINGS
Background
Budget 2006 announced that the Government would carry out a review of the
fiscal definition of biodiesel with a view to considering whether any new fuels
should qualify for the reduced rate for biodiesel and whether the current
definition remained fit for purpose in terms of the way it dealt with current
types of biodiesel, in the light of representations that the definition was too
restrictive (for example, in terms of ester content) or that it was not sufficiently
restrictive (for example, that it should specifically exclude straight vegetable
oil from the scope of the reduced rate).
Summary of responses
In all, 118 responses were received. A breakdown of those responding is
given below. Responses came largely from individuals with an interest in the
environment. Trade associations that replied covered most of those involved
in biodiesel production, as well as the National Farmers’ Union, the Country
Landowners’ Association and the Freight Transport Association. Only one
major fuel producer replied, and it supplied details of a new fuel rather than
giving specific comments on the existing fiscal definition of biodiesel.
Status Numbers
Individuals 82
Users 2
Biodiesel producers 21
Main fuel producers 1
Trade associations 12
Issues raised in responses
The main issues raised by respondents are summarised below.
1. Whether the fiscal definition should be amended to cover any
other fuels
It was recognised that there would be technological changes in the future that
would mean that the fiscal definition would have to be reviewed and amended
regularly, and most respondents believed that the definition should be as wide
as possible. The Government is aware that there are plans for the production
of a new second generation biodiesel which would not be covered by the
current definition.
Comment:
The Government accepts that technological developments are proceeding
apace, and is keen to support second generation biofuels (which may offer
greater environmental benefits than existing types of fuel). With this in mind,
the fiscal definition of biodiesel will need to be sufficiently flexible and
responsive to cater for new fuels, and will therefore be kept under continual
review. As a first step, the Government will be considering what changes are
needed to accommodate the new fuel referred to by one of the consultation
respondents.
Although the requirements of the Renewable Transport Fuel Obligation
(RTFO) may lead to a greater emphasis on large scale production of biofuels
and second generation fuels, the Government nevertheless wishes to
continue to support smaller-scale producers, though it recognises that some
current types of biodiesel (and, in particular, those produced largely from
straight vegetable oil (SVO)) are likely to remain niche fuels.
2. Whether the current definition was too restrictive or not
sufficiently restrictive (for example, should straight vegetable oil be
excluded from or included in the definition?)
The table below shows the views of respondents.
Include SVO within fiscal definition 101
Exclude SVO from fiscal definition 4
No views on issue 13
The great majority of respondents believed that SVO should be included
within the fiscal definition, because:
• There was no scientific evidence to suggest that SVO should be
treated differently from other types of biodiesels.
• In some tests, SVO seemed to offer lower carbon emissions than
transesterified biodiesel.
• No harmful chemicals such as methanol were used in producing SVO.
• Unlike transesterified biodiesel, SVO gave rise to no unwanted byproducts
such as glycerol.
• SVO was easier to obtain for local production, and therefore provided a
better carbon footprint.
• SVO could be produced easily in rural areas.
Most respondents also thought that the current definition was adequate: the
problem had been that local HMRC officers had interpreted it too strictly.
Many respondents also said that HMRC needed to ensure that legislation was
interpreted consistently in order to be fair to all producers across the UK.
HMRC were also criticised by some as acting as unofficial quality controllers
by making subjective judgments on the environmental benefits of fuels -
something for which they had no remit. However, HMRC’s experience has
been that many producers had failed to have their fuel tested against the legal
definition and had no proof that their fuel qualified for the lower duty rate.
HMRC will today publish additional guidance on the definition and more
specifically on testing. This guidance has recently been issued to HMRC staff.
On the other hand, only four respondents (of whom two were biodiesel
manufacturers who used the transesterification process) suggested that SVO
should be excluded from the fiscal definition of biodiesel. They felt that it was
unfair that SVO should be classified as biodiesel, since in their view the duty
differential for biodiesel had largely been granted to help with the extra costs
of production involved in making biodiesel using transesterification. Those
using SVO faced no similar costs of production and were in their view also
producing sub-standard fuel, given that SVO might contain damaging
additives with detrimental environmental effects. This point was also made by
a manufacturer of catalytic systems for vehicles, who believed that SVO with
certain additives should be penalised with higher duty rates.
One other respondent opposed to inclusion of SVO within the fiscal definition
suggested that using biodiesel was an inefficient use of biomass for energy.
The respondent advocated restrictions on the sale and use of SVO because
he saw it as environmentally damaging.
In addition, DTI and DfT reported some concern within the fuel and vehicle
sector about SVO, largely caused by doubts about its effects on engines,
although this concern was not supported by firm evidence. Although this was
essentially a question of fuel quality, it was suggested that the duty system
could be used to differentiate fuels perceived by the sector as lower quality
from other types of biodiesel: for example, by establishing a separate fiscal
definition (see 5. below).
Comment:
There is no definitive evidence to support excluding SVO from the scope of
the fiscal definition. The Government accepts the need for consistent
interpretation of the legislation, and, as set out above, HMRC will today
publish additional guidance on the definition and more specifically on testing.
3. Whether transesterified biodiesel should be encouraged
Many supporters of SVO questioned the environmental benefits of
transesterified biodiesel. They said that transesterification used more carbon
and harmful chemicals, and produced unwanted by-products. Some also called for the methanol used in transesterification to be charged duty at the
standard rate of 47.10 pence per litre.
Comment:
The available data confirm that transesterified biodiesel offers carbon savings
relative to conventional road fuels, and there is no environmental reason to
reconsider how transesterified biodiesel is treated for tax purposes. In
addition, EU directives recognise transesterified biodiesel as a biofuel and the
Government has no reason to disagree with that assessment.
Methanol for transesterification is used before duty is payable and is only
present in trace levels within biodiesel when it does pass the duty point. The
Government does not propose to change the existing treatment of methanol.
4. Harmonised duty treatment of biofuels across EU
There were some suggestions that the UK should follow other Member States’
practice in its duty treatment of biofuels.
Comment:
In practice, there are a number of differences in how other Member States
deal with different biofuels for tax purposes: for example, France pays a
rebate for the production of a specified amount of bioethanol by approved
suppliers each year; and Germany currently charges no duty on any biofuels.
There is no obvious consistency of approach on taxation that the UK could
easily follow. The Government believes that tax matters are for national
Governments and takes decisions on tax rates based on what is best and
most appropriate for the environment and the UK economy. It is useful to
learn from practices in other countries but the tax incentives given for biofuels
need to reflect the specific balance of UK priorities.
5. Whether SVO should be given its own specific duty rate
As noted under 2. above, there were suggestions that fuels perceived by the
fuel and vehicle sector to be of better quality should be encouraged by
inclusion within the fiscal definition, while some fuel produced from SVO
should be discouraged by exclusion from the definition.
Comment:
Given the lack of definitive evidence on this issue, it would be difficult to
present a coherent and convincing case for splitting the definition in this way.
It is unclear that it would add any clarity to the issue of what was or was not
biodiesel.
In addition, this is essentially a fuel quality issue, and HMRC would have no
sanctions on how vendors described their fuel at the point of sale. This demonstrates the limitations of using the fiscal definition as a means of
regulating fuel quality.
6. Fuel additives
The review highlighted that SVO might contain additives to improve
performance: for example, by reducing viscosity. Additives may also be used
in conventional fuels, and HMRC’s current practice is to treat additives as fuel
substitutes and charge duty at the equivalent rate for ultra-low sulphur petrol
and diesel.
Comment:
Where additives do not meet definitions of biofuels in European legislation
(see Directive 2003/30/EC, Article 2), there is no case for charging duty at the
biodiesel rate.
7. Prohibition of certain types of biodiesel
Some respondents suggested that biomass used to produce biodiesel could
come from sources such as tropical rainforests, and that much palm oil was
made from cutting down forests. Biodiesel produced in this way should not be
eligible for a duty incentive.
Comment:
It is not the purpose of the fiscal definition to distinguish the source of fuels in
this way. It would also be difficult to enforce a definition of this kind. Work is
under way, led by the Low Carbon Vehicle Partnership, to develop
environmental assurance schemes for biofuels. This is focusing on the issues
of carbon benefits and wider environmental sustainability, and reflects the
importance the Government attaches to ensuring that biofuels are delivered in
a way which maximises life-cycle carbon savings, while ensuring biofuels are
sourced sustainably. This work will inform the delivery of the Renewable
Transport Fuel Obligation, starting in 2008-09.
8. UK-produced biodiesel
Some respondents suggested that UK-produced biodiesel should also be
treated more favourably for tax purposes – for example, to encourage local
production and minimise transport costs.
Comment:
EU agreements prohibit giving preferential duty treatment to UK-produced
biodiesel.
9. Other fuels
One potential new road fuel was identified that could be produced from oils
extracted from waste plastic. It was suggested that this merited inclusion
within the scope of the fiscal definition.
Comment:
This fuel was outside the scope of the review as it was not produced from
biomass. The Government recognises, however, that non-biomass
alternative fuels may also offer environmental benefits, and will assess the
case for supporting such fuels. .
Conclusions
• The Government is keen to support second generation biofuels and
keep abreast of technological developments, and will keep the fiscal
definition of biodiesel under continual review to ensure that it is
sufficiently flexible and responsive to cater for new fuels.
• As a first step, the Government will be considering what changes to the
definition are needed to accommodate the new second generation
biodiesel for which production plans are in hand.
• The current fiscal definition remains otherwise satisfactory in defining
what is and what is not biodiesel.
• There is no definitive evidence to justify excluding SVO from the scope
of the fiscal definition.
• Guidance on interpretation of the definition will be revised further to
include more information on testing the product against the fiscal
definition.
• Steps (such as training and internal publicity) have been taken to
ensure that the regulations will be more consistently applied by HMRC
staff in line with the revised guidance.
HM Revenue & Customs
December 2006
