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Finance Bill 2002: EXPLANATORY NOTE

CLAUSE 5: BIODIESEL

SUMMARY

1. Clause 5 amends the Hydrocarbon Oil Duties Act 1979 (HODA 1979) to introduce a new, reduced rate of duty for biodiesel used as a road fuel set at 25.82 pence per litre.  It also applies this to the biodiesel element of blends containing biodiesel and hydrocarbon oil (bioblend).  The changes come into force on Royal Assent and have effect in relation to biodiesel and bioblend put to chargeable use after Royal Assent.   The clause also introduces Schedule 2 to the Bill, which makes a number of minor and consequential amendments to HODA 1979 that are needed to give effect to this measure.

DETAILS OF THE CLAUSE

2. Subsection (1) provides that the rest of the clause shall amend HODA 1979.   References to section and schedule numbers below are all to HODA 1979.

3. Subsection (2) adds a new section 2AA, subsection (1) of which defines biodiesel while subsection (2) defines some of the terms (?diesel quality?, ?liquid? and ?biomass?) used in subsection (1).

4. Subsection (3) amends existing section 2A to provide that the Treasury may make a statutory instrument to amend the definition of biodiesel in HODA 1979.

5. Subsection (4) adds new sections 6AA, 6AB and 6AC.  Section 6AA deals with excise duty on biodiesel and contains three subsections as follows:

  • Section 6AA(1) states that excise duty is chargeable when any person sets aside biodiesel for a chargeable use or, where duty has not already been charged under the new section, when any person uses biodiesel if that use is chargeable. 
  • Section 6AA(2) defines the term ?chargeable use?, used in the previous subsection.
  • Section 6AA(3) sets the rate of duty for biodiesel chargeable under the section at 25.82 pence per litre. 

The new section 6AB deals with excise duty on blends of biodiesel and heavy oil that has not been charged with the excise duty on hydrocarbon oil and contains six subsections as follows:

  • Section 6AB(1) provides, subject to subsection (6), that a duty of excise is to be charged on bioblend either imported into the UK or produced in the UK in specified circumstances. 
  • Section 6AB(2) defines bioblend for the purposes of the Act. 
  • Section 6AB(3) states that the rate of duty charged on any bioblend shall be a composite rate and sets out how duty shall be calculated. 
  • Section 6AB(4) states that the proportions of fuel mentioned in the previous subsection are to proportions by volume to the nearest 0.001 per cent. 
  • Section 6AB(5) provides that if the Commissioners (?Customs?) are not satisfied as to the proportion of biodiesel in any bioblend, the rate of duty chargeable shall be the same as that of the heavy oil that went into producing the bioblend. 
  • Section 6AB(6) sets out when duty shall be charged when imported bioblend is removed to a refinery.    

The new section 6AC deals with the application to biodiesel and bioblend of provisions in HODA 1979 relating to hydrocarbon oil.  It contains five subsections as follows: 

  • Section 6AC(1) provides that Customs may make regulations to provide that specified references in HODA 1979 to hydrocarbon oil, or to duty on hydrocarbon oil, are to be construed as including biodiesel and bioblend, or the duty on biodiesel and bioblend, as the case may be.  It also provides that Customs may make regulations that specified references in HODA after section 6AC(1) to biodiesel or bioblend can fall within a specified description of hydrocarbon oil. 
  • Section 6AC(2) states that where the effect of a provision made under the previous subsection is to extend any power to make regulations, provision made in exercising the extended power may be set out in the same statutory instrument as the provision extending the power. 
  • Section 6AC(3) defines the term 'specified? used in this section. 
  • Section 6AC(4) provides that regulations made under this section may make different provision for different cases. 
  • Section 6AC(5) provides that section 6AC(1)(b) does not prejudice the generality of section 6AC(1)(a).

6. Subsection (5) introduces Schedule 2 to the Bill, which sets out a series of minor and consequential amendments to HODA 1979 arising from the changes in this clause.

7. Subsection (6) provides that subsections (4) and (5) of this clause have effect in relation to biodiesel that is set aside for a chargeable use (as defined in the new section 6AA) after the date of Royal Assent; or to biodiesel, not having been so set aside, that is the subject of chargeable use after the date of Royal Assent.  However, this does not apply where biodiesel has been set aside for use under section 6A HODA (fuel substitutes) on or before Royal Assent.

8. Subsection (7) defines what bioblend is covered by subsections (4) and (5) of this clause, namely bioblend that is imported into the UK on a date after Royal Assent; or, where it had not been put aside for such a chargeable use under section 6A on or before Royal Assent, bioblend produced in the UK and delivered for home use after Royal Assent. 

9. Subsection (8) sets out when specified paragraphs of Schedule 2 come into effect.

BACKGROUND

10. The Government launched the Green Fuel Challenge (GFC) in November 2000 to promote the development of practical alternative transport fuels with environmental benefits, inviting industry to come up with practical proposals for such fuels. In response to proposals received, a series of duty cuts for alternative fuels was announced in Budget 2001, including the reduction to the duty on biodiesel used as road fuel from Budget 2002.   

11. The reduced rate will come into effect on Royal Assent, providing the UK has secured European agreement to its request for a derogation from the mineral oils structures Directive.  Agreement is expected shortly.

SCHEDULE 2: HYDROCARBON OIL DUTIES: MINOR AND CONSEQUENTIAL AMENDMENTS RELATING TO BIODIESEL

SUMMARY

1. Schedule 2, which is introduced by clause 5, makes a number of minor and consequential amendments to the Hydrocarbon Oil Duties Act 1979 (HODA 1979) needed to introduce the new rate of duty on biodiesel used as road fuel (introduced under clause 5).

DETAILS OF THE SCHEDULE

2. Paragraph 1 provides that the whole of the rest of the Schedule amends HODA 1979.   All section and schedule references below are to that Act.

3. Paragraph 2 amends section 6A to provide that biodiesel and bioblend are not to be treated as fuel substitutes under that section. 

4. Paragraph 3 inserts a new subsection (6) into section 11 to provide that a rebate of duty is not to be allowed under the section for bioblend. 

5. Paragraph 4 inserts a new section 17A dealing with biodiesel used other than as a road fuel.  The new section contains six subsections as follows:

  • Section 17A(1) provides for when a repayment of duty shall apply under this section. 
  • Section 17A(2) describes what uses of biodiesel qualify for repayment of duty under this section.  
  • Section 17A(3) defines the term ?as road fuel? used in the previous subsection.
  • Section 17A(4) sets out the amount of the repayment of excise duty under this section.  The result of the repayment is that those benefiting from it in effect pay 3.13 pence per litre in respect of duty on the biodiesel.  
  • Section 17A(5) sets out what the Commissioners of Customs and Excise (?Customs?) may require of someone applying for a repayment under this section.
  • Section 17A(6) provides that Customs may reject a claim where an applicant fails to comply with any of the requirements set out in the previous subsection.

Sub-paragraph (2) makes a consequential amendment to paragraph 3 of Schedule 4.
 
 6. Paragraph 5 is split into seven sub-paragraphs as follows:

  • Sub-paragraph 1 inserts a new subsection (2B) into section 20AAA to provide that, where a mixture is produced in contravention of Part 2B of Schedule 2A, excise duty shall be charged on the mixture.
  • Sub-paragraph 2 makes a consequential amendment to section 20AAA(3).
     
  • Sub-paragraph 3 inserts a new Part 2B, comprising a new paragraph 7B, into Schedule 2A.  This states that when a mixture is produced by mixing biodiesel, or a substance containing biodiesel, with rebated heavy oil, the mixture is produced in contravention of paragraph 7B.  It also defines the term ?rebated heavy oil? for this purpose.
  • Sub-paragraphs 4, 5 and 6 add cross-references to Schedule 2A and section 20AAB needed as a result of the above amendments. 
  • Sub-paragraph 7 inserts a new subsection (1AA) into section 22 such that a person is liable to a civil penalty under section 9 of the Finance Act 1994 where he puts biodiesel to a chargeable use knowing, or having reasonable cause to believe, that duty is charged under section 6AA and has not been paid.
  • Sub-paragraph 8 makes a consequential amendment to section 22 (1A).

 7.  Paragraph 6 inserts into section 27(1) references to the definitions of bioblend and biodiesel set out in the new sections 6AB and 2AA (both of which are inserted by clause 5).
 
 8. Paragraph 7 contains two sub-paragraphs that will be brought into force on a day to be appointed by Customs.  The first will delete text in the new section 6AB and the second will replace new section 6AB(6) with three new subsections:

  • Revised subsection (6) provides for circumstances in which duty charged on bioblend at importation will not be payable at any time after the production time.
  • Subsection (7) defines terms in the revised subsection (6), such as ?production time?.
  • Subsection (8) sets out when, for the purposes of the revised subsection (6), bioblend undergoes a production process. 

BACKGROUND

9. The Government launched the Green Fuel Challenge (GFC) in November 2000 to promote the development of practical alternative transport fuels with environmental benefits, inviting industry to come up with practical proposals for such fuels. In response to proposals received, a series of duty cuts for alternative fuels was announced in Budget 2001, including the reduction to the duty on biodiesel used as road fuel from Budget 2002.   

10. The reduced rate will come into effect on Royal Assent, providing the UK has secured European agreement to its request for a derogation from the mineral oils structures Directive.  Agreement is expected shortly.

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