Starting a dealership
Registering your dealership with HMRC
How to register as self-employed or a limited company with HMRC, handle VAT, and use the second-hand margin scheme for used vehicles.
TL;DR
Register with HMRC within three months of trading — as a sole trader through Self Assessment or as a limited company through Companies House. If you go VAT-registered, the second-hand margin scheme lets you pay VAT only on your profit, not on the whole sale price.
Choose sole trader or limited company
Sole traders register through HMRC's Self Assessment service; limited companies register with Companies House and then notify HMRC for corporation tax. A limited company adds admin overhead but limits personal liability — important when stock values run into the hundreds of thousands.
The registration process
- Create a Government Gateway account.
- Register for Self Assessment (sole trader) or corporation tax (limited).
- Register as an employer if you plan to pay staff or yourself via PAYE.
- Register for VAT if turnover will exceed £90,000, or voluntarily earlier.
VAT and the margin scheme
The second-hand margin scheme is the reason most dealers register for VAT. You pay 1/6th of your gross profit as VAT instead of 20% of the full sale price. It only applies to eligible vehicles — those you bought without a VAT invoice — and you must keep a stock book that meets HMRC's format.
Records you must keep
For every vehicle: purchase date, seller details, price paid, stock number, sale date, buyer details, sale price and margin. Lotra's inventory and invoicing modules produce a compliant stock book automatically.
Not tax advice. Confirm thresholds and eligibility with HMRC or a qualified accountant.
Frequently asked questions
When do I need to register?
Within three months of starting to trade if you are self-employed, or before you begin trading if you form a limited company.
Do I need to be VAT-registered?
Only compulsory once taxable turnover exceeds £90,000 (2026 threshold), but many dealers register voluntarily to reclaim VAT on costs and use the margin scheme.
What is the VAT margin scheme?
A special scheme for second-hand goods where VAT is charged only on the difference between the purchase and sale price, not on the full retail value.
Can I use the margin scheme on all cars?
Only on eligible second-hand vehicles that were bought without VAT invoiced (e.g. from private sellers or other margin-scheme dealers). Standard-rated stock is treated normally.
What records do I need to keep?
A full stock book with purchase and sale dates, prices, VAT calculation and vehicle details. HMRC can ask to see it up to six years later.
Related guides
What is a Dealership Management System (DMS)?
The foundational guide to DMS software, its core modules, and why independent dealers need one.
Switching from spreadsheets to a DMS
A step-by-step migration plan for dealers moving from Excel and Google Sheets to Lotra.
Vehicle inventory management for car dealers
How modern inventory management works — from auction purchase to sold, without spreadsheets.
See it inside Lotra
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