Is there VAT on used cars?

November 25, 2025 by David Motton

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

They say two things are inevitable: death and taxes. But what if the tax in question is VAT on a used car? Do you have to pay VAT on a second-hand car? Or does it depend on the circumstances and the seller?

In case you have just beamed down to Earth, let’s quickly explain that VAT is short for Value Added Tax. It is applied to most goods and services with the current rate being 20%. It’s generally included in the price you pay – there’s no need to cough up separately, and the seller is responsible for making sure the VAT ends up in government coffers.

There are some goods and services on which VAT isn’t applied. Are used cars one of them?

This handy guide will clear up any confusion about VAT on second-hand cars.

Remember, you can buy a used car right here on Carwow. We’re here to help you through every step of your car-changing journey.

Do you pay VAT on used cars?

It depends.

Are you buying from a private seller? If so, you won’t pay VAT. It’s quite straightforward.

Things are more complicated if you are buying from a dealer. The answer will depend on the trader’s VAT status. In many cases you will pay VAT under the VAT Margin Scheme. Never heard of it? Don’t worry, we’ll come back to it in a moment.

VAT on a used car from a dealership

VAT is payable on any new car. With a second-hand car, VAT may be payable on the dealer’s profit margin or the full price, depending on how the dealer acquired the car and how they manage their accounts.

VAT Margin Scheme

The VAT Margin Scheme allows car dealers to apply VAT to their profit margin when selling a used car, rather than the full price of the vehicle.

For a car to be sold under the VAT Margin Scheme, the dealer must have bought the car without reclaiming VAT. Typically the car will have been bought at auction, from another dealership, or from a private seller.

As a rule, the VAT Margin Scheme is good news for dealers and car buyers. The trader is able to set a lower purchase price than if VAT was applied to the whole amount, which makes the asking price more appealing to potential buyers. It’s a win for you as a buyer, too, as all else being equal the car will be cheaper.

VAT on the full price

If the dealer doesn’t use the VAT Margin Scheme or the car doesn’t qualify, then VAT is charged on the full price.

This is less common than paying a smaller amount of tax under the VAT Margin Scheme.

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.

Do you pay VAT on a pre-registered car?

To answer that question, let’s first clear up what we mean by a ‘pre-registered’ car.

Dealers have sales targets to meet. If the dealer registers a car themselves, it counts towards a sales bonus even though it hasn’t really been sold.

Car buyers can take advantage of this smoke and mirrors, as a pre-registered car is used in the sense that there’s already an owner in the logbook but, in other respects it, brand new.

When a dealer pre-registers a car they do so with the intention of selling it, but for less than the usual new price. A canny car buyer can pick up a bargain.

So, do you pay VAT on a pre-registered car? Yes, VAT is applied to pre-registered cars.

Used cars for sale

VAT on used car FAQs

What does VAT qualifying mean on a used car?

A VAT-qualifying car is one on which the full 20% VAT can be reclaimed by an eligible buyer. This is the case when the car has been exclusively owned by a VAT-registered business (for example, a driving school, leasing company, or car dealership).

For a private buyer, it doesn’t matter one way or the other if a car is VAT-qualifying. That’s because a private individual doesn’t meet the eligibility criteria to reclaim the VAT. The VAT can be reclaimed by a VAT-registered business, provided the car is only used for business purposes.

Do car dealers have to pay VAT?

Yes, a car dealer must pay VAT on vehicles they sell. There will be VAT included in the total price of a second-hand car, whether it is sold under the VAT Margin Scheme or whether VAT is applied to the full pre-tax price. The dealer will pay that VAT to HMRC.

Can a company reclaim VAT for a second-hand car?

It depends. If the car is VAT qualifying (which means it has always been owned by a VAT-registered business) then the VAT portion of the price can be reclaimed.

Car change? Carwow!

Looking for a new set of wheels? With Carwow you can sell your car quickly and for a fair price – as well as find great offers on your next one. Whether you’re looking to buy a car brand new, are after something used or you want to explore car leasing options, Carwow is your one stop shop for new car deals.

Change your car the easy way

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