Is there VAT on used and second-hand cars?

We pay tax each and every day, but you might have been wondering how that applies to the used car market. This handy guide will explain all.

Value Added Tax, or VAT as it’s better known, is a tax added to the majority of goods and services – including new cars.

In the UK the standard VAT rate is 20 per cent, and this is usually included in the price of the item. It’s not as cut and dried in the used car world, though, so this guide is here to explain when you will and won’t pay VAT on a second-hand car.

VAT on a used car from a dealership

If you’re buying a car from a dealership, you will have to pay VAT. As with other goods and services, this is usually included in the price of the vehicle, but there are two ways it can be applied.

Second-hand margin scheme

This is the most common way car dealers include VAT and it is applied to the profit the dealer makes, based on how much they bought it for and how much you’re buying it off them.

The rate is calculated as a sixth of the profit and will not be noted on the receipt.

VAT on the selling price

The second option is to charge the VAT at 20 per cent of the car’s selling price. This is rarely used, though, because it’s higher than the scheme above.

Whichever method is used, the dealer is not legally required to tell you which one they are using. If you’re concerned about any hidden costs, ask your dealer which VAT scheme they use.

VAT on a used car from a private seller

If you buy a car from a private seller it’s much simpler, as there is no VAT to pay. So whether you’re the buyer or seller in a private sale you don’t have to worry about paying taxes.

What about VAT on pre-registered or nearly new cars?

Firstly, what is a pre-registered car? Car dealerships are set sales targets by manufacturers they are franchised with. Meeting these targets could earn them a bonus, so sometimes they will buy their own stock and register it with the dealership.

Known as ‘pre-registered’ vehicles, they are technically now ‘used’ cars, so they’re available at a big discount to private buyers compared with new models, often with low or delivery mileage. If you don’t mind being the second owner, they are a great way to get into a nearly new car at a discount.

These models are no different to other cars bought from a dealership and will include VAT in the price.

Get your next car with carwow

Now you’re ready to buy your next used car, head over to carwow to take a look at the latest stock.

You can search by make and model, but if you’re not sure what to buy, there’s a handy guide that will look at your wants and needs and point you in the right direction.

Looking to sell your current car to fund your next one? carwow can help with that, too. Simply upload photos and details of your vehicle to receive offers from dealers.