Motor dealer legal issues

A motor dealer showing a legal contract to a couple at a motor dealership

Some key areas of legislation that affect you as a motor dealer are outlined below. Note that this list is not intended to be exhaustive.

What licences does a motor dealer need?

You should be aware of the following areas where a licence may be required:

  • under the provisions of the Money Laundering Regulations, 'high value dealers' - including motor dealers - must register with HM Revenue & Customs (HMRC) and put in place anti-money laundering systems. The website contains more information about what high value dealers are and what they need to do
  • to carry out MOT testing you will need authorisation from the Driver and Vehicle Standards Agency (DVSA). An application form must be completed and returned with references and plans of the premises and surroundings. Officers from the DVSA will visit the site to check that the test equipment is functional and correctly calibrated. You can find out more on the website
  • to offer finance to customers you will need consumer credit authorisation from the Financial Conduct Authority (FCA)
  • to sell, advise on, arrange or assist in selling general insurance you'll need to be authorised by the FCA even if insurance is only a small part of your business. This includes insurance backed warranties. Dealers can become directly authorised by the FCA or they can act as an 'appointed representative' of an authorised principal. Contact the FCA for further information
  • if you intend to sell petrol you will need a petroleum storage certificate from the local petroleum enforcement authority (contact your local authority for details). An environmental permit or pollution prevention and control permit may also be required (see below)
  • under pollution control legislation, businesses that engage in certain processes require a permit from their local authority environmental health department (or from SEPA in Scotland, Natural Resources Wales, or the Northern Ireland Environment Agency). Regulated processes include refinishing cars and using a waste oil burner. Petrol filling stations with an annual throughput of more than 500,000 litres of petrol also need a permit
  • any premises in Wales which produces 500kg or more of hazardous waste in any 12 month period needs to be registered with Natural Resources Wales
  • if you want to drive unregistered and/or untaxed vehicles which are temporarily in your possession, then you will need trade licence plates ('trade plates') from the DVLA. You are only permitted to drive on trade plates for certain purposes - for example test drives, deliveries, and taking a vehicle to another motor trader's premises. Note that trade plates only exempt you from the need to tax a vehicle - they don't exempt it from MOT testing requirements (where these are applicable) or the need to be properly insured. However, by registering your trade plates with the Motor Insurance Database then the relevant authorities will be able to see that you have an appropriate motor trader's insurance policy in place to cover you. Trade licence plates are valid for a period of between six and 12 months, after which you'll need to renew them if you still need them. A fee is due for applications and renewals. You can find out more and apply for trade licence plates on the website
  • all vehicle number plate suppliers in England and Wales are required by law to register with the DVLA. You can find out more about registering on the website
  • if you operate goods vehicles like car transporters with a gross plated weight of more than 3.5 tonnes (or unladen weight more than 1,525 kg for unplated vehicles) then it will need a goods vehicle operator licence in England, Scotland and Wales. You must have an operator licence for each Traffic Area in which you have a base. Licences are issued by the Traffic Commissioner for that area. There are eight Traffic Areas covering England, Wales and Scotland. In Northern Ireland you may need a goods vehicle operator's licence from the Transport Regulation Unit (TRU) of the Department of the Environment (DOENI). More information about goods vehicle operator licensing is available from the website and from the DOENI
  • if you play background music in the showroom and/or elsewhere in the outlet you will probably need a Music Licence from PPL PRS Ltd. There is an annual fee for this which you can pay online on the PPL PRS website.
  • local authorities in Scotland require second-hand dealers - including motor dealers - to obtain a licence or registration to operate. This applies unless dealing in second-hand goods is only incidental to the main business activity. Elsewhere in the UK, some local authorities license or register businesses where second-hand dealing is the main or a significant part of the business and is not just incidental. However, certain specific exemptions generally apply - these typically include motor vehicle dealers. Businesses which hold consumer credit authorisation are normally also exempt. If you are in any doubt as to whether second-hand dealer licensing may apply to your business, contact your local authority trading standards department for guidance

Note that as a 'franchisee' of a vehicle manufacturer you will have entered into a legally binding contract which sets out certain restrictions and obligations for your business.

Voluntary codes of practice, the Motor Ombudsman Codes, exist for members of the motor industry. You can find out more on the Motor Ombudsman Codes website.

Motor dealers' credit authorisation may be revoked if they persistently break fair trading rules.

The Society of Motor Manufacturers and Traders (SMMT) offers legal and technical advice and assistance to its members on matters such as employment law and vehicle legislation.

The Retail Motor Industry Federation (RMIF) also has a motor industry specific legal helpline available for its members.

The cars that you sell

  • all new and used vehicles that you offer for sale for road use must be in a roadworthy condition. Note that this also applies to all replacement motor parts that you fit or sell
  • under fair trading and consumer regulations it is a criminal offence to make false or misleading claims about any goods that you offer for sale. Note that this applies to the recorded mileage on a used car if no disclaimer is displayed
  • regulations also cover contracts of sale and sellers' and buyers' rights. For example, you are responsible for ensuring that goods or services are fit for their intended purpose and are of satisfactory quality

Consumer protection regulations require businesses to act in a fair and responsible way towards their customers at all times. You can find out more about consumer protection and fair trading legislation - including some specific guidance for various parts of the motor industry - on the Trading Standards Business Companion website. Information is also available on the website. Your local Trading Standards department should be able to advise you if you have a specific query about how consumer protection legislation affects your business.

Note that it is against the law for a motor trader to advertise a vehicle for sale without making it clear in the advertisement that it is a trade and not a private sale.

Registering, taxing and insuring vehicles

When you sell new vehicles you'll normally be responsible for registering them for the first time and ensuring that all the necessary paperwork is completed. As part of the registration process you will allocate a registration number to the vehicle - often from your advance allocation of registration numbers - and generally tax it on behalf of the buyer. It is important to make sure you follow the correct procedures and observe the necessary security measures at all times to stop others from abusing the system.

You and your staff can drive unregistered and untaxed new vehicles on the road legally for certain permitted purposes such as test drives and deliveries by using trade licence plates ('trade plates'). There's more information about trade plates on the website.

As well as new vehicles, you're likely to have quite a large number of other vehicles passing through your business on a regular basis - used stock, customers' vehicles, courtesy cars, demonstrators and so on. You'll need to take certain steps to make sure that they stay legal while they're in your care, whether you drive them on the road or not. (See insurance below.)

Registered vehicles which you own temporarily but which aren't registered to you or your business - for example, used stock vehicles on your forecourt - don't normally have to be taxed. You can drive them on the road for permitted purposes if you use trade plates. However, if a vehicle remains in your possession for more than 90 days then you must normally register it yourself and then either declare it off the road or tax it.

Environmental legislation

Legislation aimed at protecting the environment includes the Environmental Protection Act and the Hazardous Waste Regulations. These regulate the disposal of controlled waste such as scrap parts and tyres, and hazardous waste such as waste oil or old car batteries. Such waste may only be taken away by registered, authorised carriers.

Specific regulations cover the recovery and disposal of old lead acid batteries.

Health & Safety, fire

You must comply with workplace health and safety and fire safety legislation.

There are particular health and safety issues relating to motor vehicle servicing and repair activities - for example using vehicle lifts safely, working near rotating engine parts, carbon monoxide from running engines, manual handling and noise.

The Control of Substances Hazardous to Health (COSHH) Regulations cover the storage and use of chemicals, for example paints, thinners and adhesives.

Employment legislation

Anyone employing staff must comply with employment legislation. Important areas of legislation include recruitment, employment contracts, pay, working hours, holidays, employment policies, sickness, maternity, paternity, discrimination, discipline, grievances, dismissals, redundancies and employment tribunals.

Insurance for a motor dealer

Contact an insurer or insurance broker and explain exactly how your business will operate - they will then explain what insurance cover you must have by law, and other cover you should consider. This might include:

  • employer's liability
  • public liability
  • vehicle trader's motor insurance
  • premises, premises contents and stock
  • goods in transit (being collected or delivered)
  • cash
  • business interruption
  • product liability
  • loss of MOT licence
  • environmental liability
  • directors' liability

Your motor trade insurance policy should cover you when you're driving various different vehicles. By uploading details of registered vehicles to the Motor Insurance Database (MID) whenever necessary you'll be able to comply with the 'continuous insurance enforcement' rules (it's often a good idea to upload details even in situations when it's not a legal requirement). You can find out more about the MID on the askMID website.

A good motor trader's policy should cover you and your staff to drive any vehicle - whether it's stock, a demonstrator or a customer's car - at any time. Check whether or not you're covered when a vehicle is being driven on private land - at your premises rather than on a public road, for example.

Note that many of your prospective customers will want to test drive a vehicle before making a decision. Make sure that test drivers are always adequately covered by your insurance.

Be clear whether it is you or your vehicle supplier who is liable for insuring stocks of new vehicles that have not been 'adopted' by your business.

The Retail Motor Industry Federation (RMIF) offers its members business insurance services.

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