Renewable Transport Fuel Obligation (RTFO) and Tax Disputes: Navigating a Complex Compliance Landscape

The Renewable Transport Fuel Obligation (RTFO) is a central mechanism in the UK’s decarbonisation strategy for the transport sector. Administered by the Department for Transport (DfT), the RTFO requires fuel suppliers to ensure a certain proportion of the fuel they supply is renewable. The scheme plays a pivotal role in incentivising the use of biofuels and other renewable transport fuels by awarding Renewable Transport Fuel Certificates (RTFCs) to suppliers who meet prescribed sustainability and carbon-saving criteria.

According to the DfT:

“In 2023, because of the RTFO, 3.7 billion litres of renewable fuel was supplied for use in UK transport. This constitutes 7.5% of total fuel for road and non-mobile machinery use supplied over the year. This delivered greenhouse gas savings of 7.9 million tonnes of CO2”

How the RTFO Works

Under the RTFO, suppliers of over 450,000 litres of fuel per year are obligated to meet an annual target of renewable content, which is expressed as a percentage of the total fuel supplied. This can be achieved by:

• Supplying eligible renewable fuels (for which suppliers can redeem RTFCs);
• Purchasing RTFCs from other suppliers; or
• Paying a buy-out price.

Each litre of qualifying renewable fuel can generate RTFCs depending on its energy content and sustainability credentials. 

Disputes with the RTFO Administrator

Given the complex RTFO reporting requirements, disputes frequently arise between suppliers and the RTFO Administrator (part of the DfT). These disputes often centre on:

• Eligibility of fuels: Whether a particular batch meets the required sustainability or GHG saving thresholds;
• Administrative errors: Mistakes in the reporting process that lead to loss of RTFCs or misclassification of fuels;
• Enforcement action: The Administrator has powers to issue civil penalties or withhold certificates if obligations are not met.

The routes for challenging decisions of the Administrator are numerous and complex:

• Penalty decisions can be challenged by an application to the High Court under section 131 of the Energy Act 2004.
• For a ‘Notice of Proposal to Revoke’ RTFCs, suppliers can make representations to the Administrator. Upon receipt of representations, the Administrator can convene an oral hearing. 
• In other scenarios, the appropriate mechanism for challenging the Administrator may be Judicial Review.  

Suppliers who feel aggrieved by decisions of the Administrator should seek legal advice on their options. 

Disputes Between Businesses

Disputes also frequently arise between businesses relating to the RTFO. 

The RTFO is administered using the RTFO Operating System (also known as “ROS”). Fuel suppliers update this system to show the fuel that they have supplied. This data is validated against data from HMRC, typically fuel duty returns. This means that the RTFO regime is heavily reliant on accurate reporting of fuel duty data. 

This dependency can give rise to commercial litigation, particularly when a supplier or subcontractor fails to correctly report a fuel duty transaction, leading to a shortfall in RTFCs for a downstream entity. 

Such errors can have significant financial consequences, not just due to the lost RTFCs themselves (which are potentially tradable commodities), but also because of the knock-on impact on a business’ ability to meet its RTFO obligation — potentially triggering penalties or costly buy-out payments.

How we can help

Businesses operating in the transport fuel sector should:

• ensure robust internal compliance processes;
• regularly audit RTFO submissions for accuracy and consistency; and
• review commercial contracts to ensure clear allocation of risk in relation to RTFC generation and reporting errors.

Our UK Tax Controversy team has experience of handling RTFO disputes and is well placed to advise businesses operating in the transport fuel sector. Please contact us if you would like further support or guidance.