Used car dealer legal issues

Car dealer handing the keys over to the new car buyerThere is a wide range of legislation that can apply to a used car dealer, some of which is likely to be particularly relevant. The following is an overview of some of the key areas that you should be aware of. The list is not intended to be exhaustive.

What licences does a used car dealer need?

There are no licensing requirements relating specifically to used car dealers in many parts of the UK. However, if you're based in Scotland you'll need a second hand motor vehicle dealer's licence from your local council. Second hand dealer licensing applies in some other parts of the UK too, but often exempts motor dealers. It's worth checking with your own local authority though to make sure.

You should, however, be aware of the following:

  • if you want to drive untaxed stock vehicles on public roads then you will need trade licence plates - 'trade plates' - from the DVLA. You will need to stick to the strict conditions of trade plate usage. There is more information about applying for and using trade licence plates on the website
  • under the provisions of the Money Laundering Regulations 'high value dealers', including motor dealers, must apply to register with HM Revenue & Customs (HMRC) and put in place anti-money laundering systems. The website contains more information
  • if you intend to offer finance to customers you will need consumer credit authorisation from the Financial Conduct Authority (FCA). Limited permission authorisation may well be sufficient to cover your credit activities, but your authorisation may need to cover debt adjusting and debt counselling (taking over outstanding finance on part-exchange vehicles, and giving your customers advice about this)
  • anyone who sells, advises on, arranges or assists in selling general insurance may need to be regulated by the FCA even if insurance is only a small part of their business. This includes insurance backed motor warranties. Motor traders can either become directly authorised by the FCA or an 'appointed representative' of an authorised insurer
  • if you intend to carry out MOT testing you will need authorisation from the Driver and Vehicle Standards Agency (DVSA). An application form from the DVSA 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. Further information is available on the website. In Northern Ireland, MOT testing is carried out at government run testing stations
  • if you intend to sell petrol (or operate a non-retail petrol pump for filling your own stock and possibly hire vehicles) you will need a petroleum storage certificate from the local petroleum enforcement authority - contact your local authority for details
  • 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
  • under pollution control legislation, businesses that engage in certain industrial processes require a permit from their local authority environmental health department. Regulated processes include refinishing cars (paint spraying)
  • if copyright music is used in the business - for example background music in a showroom or workshop - then you will 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
  • if your business operates 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. In Northern Ireland you may need a goods vehicle operator's licence from the Transport Regulation Unit (TRU) of the Department for Infrastructure (DfI). More information about goods vehicle operator licensing is available on the website - and from the DfI in Northern Ireland
  • businesses that keep computerised records of individuals' personal details - perhaps for credit finance purposes - may need to register as data users with the Information Commissioner's Office (ICO)

Note that if your business has consumer credit authorisation (see above) and is found to be engaging in 'dodgy' practices then the authorisation can be withdrawn.

Tyre safety standards

Specific regulations set standards for the construction and marking of all tyres sold for road use in the UK. You must only supply tyres that comply with these standards. Retreaded tyres and part-worn tyres must also comply with the appropriate British and European Standards and legislation. In the case of part worn tyres, these cover such things as the amount of tread left, and checking the tyre for any significant defects. Don't forget that part worn tyres must be permanently marked as such before being sold, a point which is often overlooked. British Standards also cover tyre repairs, so if you mend any punctures make sure that the repair is done properly. You should also be familiar with the minimum tread depth requirements so that you are able to advise customers when their tyres are approaching the legal limits.

Your local authority trading standards department will be able to help you with any questions you might have about tyre specification and marking requirements. Reputable tyre suppliers should be able to help with this too.

Tyre labelling

Tyre manufacturers must provide a 'consumer advice' label with the tyres they distribute. This must provide information about fuel efficiency, wet grip and rolling noise. Tyre retailers must pass this information on to the end user. There is more information about tyre labelling requirements on the National Tyre Distributors Association (NTDA) website.

Hazardous substances

Various hazardous substances are used in garages and specific regulations cover their use, storage and disposal. Ensure that your and any employees' exposure to potentially harmful substances is minimised. This might involve precautions such as using dust masks and goggles when changing brake components, and using gloves or barrier cream to limit exposure of the skin to substances like oil or brake fluid. Hazardous substances must be stored correctly, too.

Disposal of old tyres

All waste tyres must be disposed of properly. They may only be taken away and disposed of by a registered waste carrier authorised by the Environment Agency in England, Natural Resources Wales, the Northern Ireland Environment Agency, and the Scottish Environment Protection Agency (SEPA) in Scotland. If you are unsure whether a collection firm is authorised, you should check with the Environment Agency, the Northern Ireland Environment Agency or SEPA. Similar rules apply to the disposal of hazardous wastes, such as old engine oil or brake fluid. Visit the website for further guidance.

Goods and services - consumer protection

There is a range of legislation that applies to all businesses to protect the interests of the customer. For example, goods and services must not be misleadingly described. You will be responsible for making sure that all parts supplied are fit for their intended purpose, and that both parts and work done are of satisfactory quality - all repairs must be done with care. More information and guidance on consumer protection and fair trading legislation are available on the Trading Standards Business Companion website. Information is also available on the website.

Parts and repair standards

Legislation covers the sale and supply of goods and services - including the supply of car parts and repairs. You are responsible for ensuring that the correct parts are used and fitted safely and that all work is carried out in a way that will ensure the safety of any future driver of the car.

Health & safety, fire

You must also make sure that you comply with workplace health and safety and fire safety legislation.

Employment legislation

Anyone employing staff must comply with employment legislation. Important areas of legislation include:

Recruitment and employment contracts

Pay and pensions

Working time: hours, leave, flexible working

Employment policies

Sickness and sick pay

Maternity, paternity and adoption


Managing home workers, remote workers, lone workers

Discipline and grievance

Dismissals and redundancies

Employment tribunals

Insurance for a used car dealer

When you start up in business you will need insurance cover. Contact an insurer and explain how your used car business will operate. They will then be able to recommend what cover you should have, which might include:

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

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.

The Independent Garage Association, part of the Retail Motor Industry Federation (RMIF), offers its members advice on insurance matters and access to specialist commercial insurance services through its partner providers.

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