Finance Bill 2002: EXPLANATORY NOTE

CLAUSE 6: REGULATING TRADE IN REBATED HEAVY OIL ETC

SUMMARY

1. Clause 6 and Schedule 3 provide for the regulation of those who trade in heavy oils on which a rebate of excise duty has been allowed with effect from a day to be appointed.

DETAILS OF THE CLAUSE

2. Subsection (1) provides that Schedule 3 of the Bill shall have effect.

3. Subsection (2) describes the 2 parts of the Schedule. The first part provides for the regulation of those who trade in heavy oil on which rebate of excise duty has been allowed. The second part amends provisions of the Hydrocarbon Oil Duties Act 1979 relating to rebates.

4. Subsection (3) provides for the provisions for the regulation of traders in controlled oils, in paragraph 1 of the Schedule, to come into force on a day to be appointed by Customs, rather than on Royal Assent.

5. Subsection (4) provides that where the provisions in paragraph 1 of the Schedule give Customs power to make regulations they will nevertheless come into force on Royal Assent.

DETAILS OF THE SCHEDULE
Part 1

6. Paragraph 1 inserts new sections 23A (Regulation of traders in controlled oil), and 23B (Power to provide for exceptions to section 23A), after section 23 of the Hydrocarbon Oil Duties Act 1979 (Prohibition on use etc of road fuel gas on which duty has not been paid). These are described in paragraphs 7 - 15 below

7. New section 23A(1) provides that a revenue trader who buys, sells or deals in controlled oil in the course of trade or business, and is not a registered dealer and shipper, shall be liable to a civil penalty under section 9 of the Finance Act 1994 (Penalties for contraventions of statutory requirements).

8. New section 23A(2) disapplies subsection (1) from the buying of controlled oil by the revenue trader if he buys that oil for use in the course of trade or business where that use does not involve selling or dealing in hydrocarbon oil.

9. New section 23A(3) disapplies subsection (1) to the selling of controlled oil by the revenue trader if he had bought that oil for use under section 23A(2), but then ceases to use that oil for that use and subsequently sells on the unused oil.

10. New section 23A(4) provides that if a revenue trader is entitled to the possession of controlled oil, but he is not a registered excise dealer and shipper, then the fuel shall be liable to forfeiture.

11. New section 23A(5) provides that the controlled oil will not be liable to forfeiture, if the controlled oil is for use by the revenue trader, and that use does not involve selling or dealing in hydrocarbon oil.

12. New section 23A(6) provides that the controlled oil will not be liable to forfeiture, if the revenue trader had bought the controlled oil for use where the use was other than for selling or dealing in hydrocarbon oil, and he still holds some of that oil pending its sale as he has stopped using that oil for that purpose.

13. New section 23A(7) provides that where a controlled oil is liable to forfeiture under new section 23A(4), then anything else mixed with the controlled oil, any container in which the controlled oil, or a mixture containing controlled oil, is kept and any equipment used for dispensing the contents of such a container, shall also be liable to forfeiture.

14. New section 23B(1) provides that Customs may make regulations which provide for:

i) further exceptions to the liability to a civil penalty for a revenue trader, who buys, sells or deals in controlled oil in the course of trade or business, and is not a registered dealer and shipper, than those already set out in sections 23A(2) and 23A(3);
ii) further exceptions to the liability to forfeiture of oils etc, than already made in sections 23A(5) and (6); and
iii) exceptions to the liability to forfeiture of things mixed with controlled oil, the containers they are in and equipment used for dispensing the contents of any such container.

15. New section 23B(2) provides that the regulations about exceptions may provide for exceptions subject to conditions that are specified in the regulations themselves, or are specified by Customs under the regulations.

16. Paragraph 2 of the Schedule inserts a new paragraph (p) into section 100H(1) of the Customs and Excise Management Act 1979 (particular provision that may be made by registered excise dealers and shippers regulations). This means that Customs can make regulations under section 100G of that Act, about registered excise dealers and shippers trading in controlled oils.

17. Paragraph 3 of the Schedule inserts new section 24AA (Registered excise dealers and shippers regulations: special provision for traders in controlled oil) after section 24 (Control of use of duty-free and rebated oil) of the Hydrocarbon Oil Duties Act 1979.

18. New section 24AA(1) sets out the specific matters that Customs may regulate in regulations made under section 100H(1) of the Customs and Excise Management Act 1979 (particular provision that may be made by registered excise dealers and shippers regulations), in relation to traders in controlled oil.

19. New section 24AA(2) defines the terms ?prescribed? and ?trader in controlled oil? as used in new section 24AA.

20. Paragraph 4 inserts a definition of ?controlled oil? in section 27(1) of the Hydrocarbon Oil Duties Act 1979 and makes other amendments concerning the interpretation of the expressions ?registered excise dealer and shipper? and ?revenue trader? in that Act.

Part 2

21. Paragraph 5 says that the Hydrocarbon Oil Duties Act 1979 is amended by paragraphs 6 to 9.

22. Paragraph 6 inserts the phrase ?under section 11 above? into section 12(1) of the Hydrocarbon Oil Duties Act 1979 (no rebate allowed on heavy oil intended for use in a road vehicle), so that this section applies only to rebates under section 11 (Rebate on heavy oil).

23. Paragraph 7 amends section 12(2) of the Hydrocarbon Oil Duties Act 1979 (oil not to be used in road vehicles if rebate has been allowed under section 11(1) or 13AA(1)) so that it applies to oil rebated under any of section 11 and not just that under subsection (1) of that section.

24. Paragraph 8 amends section 24(2) of the Hydrocarbon Oil Duties Act 1979 (regulations made for the purposes of section 12 or 13AA), so that it amends the reference to 'subsection (2) of that section? to a reference to 'subsection (2) of section 12, or subsection (3) of section 13AA?.

25. Paragraph 9 makes an amendment to the definition of ?rebate? in section 27(1) of the Hydrocarbon Oil Duties Act 1979, so that it will also refer to rebates of duty under section 13AA of the Act.

BACKGROUND

26. The Government gave its current estimate of revenue loss from oils fraud and set out a number of proposals to tackle this rising problem in Tackling Indirect Tax Fraud, published alongside the Pre-Budget Report. The Government has since been consulting on these proposals. In the wake of this consultation, the Government has announced a comprehensive strategy to tackle oils fraud.

27. This fraud mainly relates to the misuse as road fuel of rebated red diesel intended for off-road use and tax-free kerosene intended for domestic heating. As a result, the Government is introducing legislation to regulate those who trade in these rebated fuels in order to reduce the risk of their being misused as road fuel.