When buying and selling cars counts as trading
HMRC weighs the “badges of trade”. From its Business Income Manual, the ones that fit buying and selling cars:
- Profit-seeking motive — “an intention to make a profit supports trading, but by itself is not conclusive.”
- Number of transactions — “systematic and repeated transactions will support ‘trade’.”
- Changes to the asset — was it “repaired, modified or improved to make it more easily saleable or saleable at a greater profit?”
- The way the sale was carried out — was it sold in a way typical of trading organisations?
- Source of finance — was money borrowed to buy it, to be repaid only by selling it?
- Time between buying and selling — “an intention to resell an asset shortly after purchase will support trading.”
- How it was acquired — something inherited or given is less likely to be the subject of trade.
No single badge decides it: the courts go on “the overall impression gained from a review of all the badges”. (HMRC BIM20205)
Tax: the £1,000 allowance and Self Assessment
- Individuals can get up to £1,000 each tax year tax-free as a trading allowance. If gross trading income is £1,000 or less, you may not have to tell HMRC — though there are circumstances when you must register. Over £1,000, the allowance can be deducted instead of expenses. (GOV.UK)
- HMRC: “Gross income means the total amount you would put on your tax return before any allowances or expenses are taken off.” (GOV.UK)
- A sole trader can start trading straight away, but “must register for Self Assessment as a sole trader if you earn more than £1,000 in a tax year (from 6 April to 5 April)”. Sole traders have unlimited liability — personally responsible for the business's debts. (GOV.UK)
VAT and the margin scheme
A business must register for VAT if its total taxable turnover for the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days. (GOV.UK)
VAT-registered dealers can use the margin scheme for second-hand vehicles: VAT is worked out on the difference between the purchase price and the selling price, not the full price. GOV.UK's steps:
- take the purchase price away from the selling price — the gross margin;
- multiply the gross margin by 1/6.
From the same guidance:
- The purchase price doesn't include the cost of bringing the vehicle to sale — repairs, refurbishment, accessories or overheads.
- The selling price includes incidental expenses linked to the sale, “for example, where you have had to pay for an MOT to make the vehicle saleable”.
- The scheme can't be used for new vehicles, vehicles imported into the UK, vehicles bought on an invoice showing VAT separately, or “category A and B write-off vehicles”.
- Records include a stock book tracking each vehicle sold under the scheme, and purchase and sales invoices.
Source: GOV.UK, Using the VAT margin scheme for second-hand vehicles
Driving the cars: tax, insurance and trade plates
Vehicle tax. “You must tax a vehicle you've bought before you drive it, or declare it off the road (a SORN). The tax is not transferred to you when you buy the vehicle.” DVLA is told when a vehicle is bought, whether by a registered keeper or a motor trader. (GOV.UK)
Trade licence plates let a motor dealer's employees and customers drive a vehicle for certain purposes without registering and taxing it — for example, test drives. (GOV.UK)
- Who can apply: motor dealers, motor traders and vehicle testers — a business that sells vehicles qualifies.
- How: form VTL301 with a copy of a Motor Trade Insurance Certificate; “if you have a different type of insurance, your application will not be approved.”
- Licences expire on 30 June or 31 December and last 6 to 12 months. A 12-month vehicle licence applied for in January costs £177 (GOV.UK's table, October 2026).
- Use: only on vehicles that are roadworthy, insured and have a valid MOT (or are exempt), and only for the purpose written on the application.
Source: GOV.UK, Trade licence plates
Duties when selling
- Selling to consumers as a trader brings the Consumer Rights Act 2015 — satisfactory quality, fit for purpose, as described, the 30-day right to reject — and those can't be excluded with “sold as seen”. Full detail: Sold as seen.
- A trader posing as a private seller is a banned practice in all circumstances (Digital Markets, Competition and Consumers Act 2024, Schedule 20, paragraph 25). (legislation.gov.uk)
- Not telling a consumer that a car has been an insurance write-off, or that its mileage history has a discrepancy, is listed by trading standards as a misleading omission. (Business Companion) See Write-off categories explained.
Finding cars to buy
The main routes — auctions, part-exchange, other traders, online platforms and private sellers — are in Where dealers get their stock. Motorwatchr puts private-seller cars from the big UK sites into one list every morning, with the MOT history where the registration is known, a value rating when there are enough similar adverts, and the link to the advert.