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How much do dealers make on a used car?

Less of the gap between trade and retail than it looks, and we cannot tell you the figure for a specific car. What is knowable is where the money goes. The difference between what a dealer paid and what they advertise is the gross margin, not the profit: VAT takes a sixth of it straight off under the second-hand margin scheme, and preparation, warranty, the cost of having money tied up in the car and the overhead of the site all come out of what is left. Crucially, HMRC does not let preparation costs reduce the margin VAT is charged on — so a car that needed two tyres and a service is taxed on the same margin as one that needed nothing.

Why we will not give you a percentage

A single number would hide how wide the range is. We have no figure we can source for what a UK used-car dealer makes per car, and the range is wide: it moves with the price of the car, how long it sits on the forecourt, what it needed doing, whether it arrived as a part-exchange or came from auction, and whether the dealer earns anything alongside it on finance or warranty.

What is knowable is the structure — where the money goes between the trade price and the windscreen price. That turns out to be more useful for negotiating than a percentage would be, because it tells you which parts of a deal have room in them.

VAT takes a sixth of the margin, not of the price

Most eligible used cars are sold under HMRC’s second-hand margin scheme. HMRC describes it as accounting for VAT “on the difference between the price you pay for a second-hand vehicle and the price you sell it for, instead of the full selling price of each vehicle”. The calculation is blunt: work out the gross margin, then multiply it by one sixth.

That is why a used car invoice from a dealer usually shows no separate VAT line. The VAT is inside the price, and a VAT-registered buyer cannot reclaim it.

The part that does the real work: HMRC states that the purchase price for margin purposes “does not include the cost of bringing the vehicle to sale”. Preparation does not reduce the margin the VAT is charged on. A car that needed two tyres, a service and an MOT is taxed on exactly the same margin as an identical one that needed nothing — and that work comes out of what is left afterwards.

Source: HMRC — Using the VAT margin scheme for second-hand vehicles. Read 20 September 2026.

What else comes out of the margin

Preparation. Tyres, brakes, a service, an MOT, bodywork and valeting, plus the cost of putting it right if something is found. On an older car this can be a large share of the margin and it is spent before the car is advertised.

Warranty and comeback. A dealer sale carries statutory rights that last months, so the cost of things going wrong afterwards sits with the dealer whether a warranty was sold or not — your rights if a used car breaks down sets out what they are actually carrying.

The cost of the money. Stock is usually funded, and a car that sits for two months costs interest for two months. This is the reason a car that has been advertised a while often has more room in it than a fresh arrival: the dealer is paying to keep it.

The site. Premises, staff, advertising and the rest, spread across however many cars are sold that month.

What this means when you are negotiating

Ask about the parts of the deal with room in them rather than opening with a percentage. A car advertised yesterday has less give in the price than one that has been there six weeks. There is often more movement on the part-exchange figure, on including a service or a warranty upgrade, or on a set of tyres, than on the windscreen price — those cost the dealer less than the equivalent cash.

Come with a specific figure and a reason: comparable cars advertised at a lower price, an advisory on the MOT record that will need money soon, or mileage well above the norm for the age, which the mileage-by-age table lets you check in a minute. A checkable reason works better than an opening percentage, which every dealer has heard.

And if finance is part of the deal, it is reasonable to ask whether the dealer is paid for arranging it — who sets the APR on car finance explains what the FCA banned in 2021 and what that changed.

Questions people ask

What is a typical dealer margin on a used car?
We have no figure we can source for a typical dealer margin, so we quote no percentage: a single number would hide how much it varies. It varies with the price of the car, how long it sits, what it needed doing, whether it was a part-exchange or bought at auction, and whether the dealer makes money on finance or warranty alongside it. What can be said is that the gross margin is not the profit: a sixth of it goes in VAT before anything else, and preparation, warranty provision, funding and overheads come out of the rest.
Do dealers pay VAT on the whole price of a used car?
Usually not. Most eligible second-hand vehicles are sold under the VAT margin scheme, which HMRC describes as accounting for VAT "on the difference between the price you pay for a second-hand vehicle and the price you sell it for, instead of the full selling price". The dealer works out the gross margin and multiplies it by one sixth. That is why a used car invoice from a dealer usually shows no separate VAT line: the VAT is inside the price and is not reclaimable by a VAT-registered buyer.
Does the work a dealer does to a car reduce the VAT they pay?
No, and this is the detail that surprises people, including some buyers who assume a well-prepared car has a bigger margin behind it. HMRC states that the purchase price for margin purposes "does not include the cost of bringing the vehicle to sale". So new tyres, a service, a fresh MOT and paint correction do not reduce the margin the VAT is charged on. A car that needed £800 of work is taxed on the same margin as an identical one that needed nothing, and the £800 comes out of what is left afterwards.
Why will a dealer not match a private seller’s price?
Because they are not selling the same thing. A private sale transfers a car and almost nothing else. A dealer sale carries consumer rights that last months, usually a warranty, preparation work, and the cost of having capital tied up in stock that may not sell for weeks. Those are real costs attached to real protections, and they are the reason the same car is dearer on a forecourt. Whether that is worth paying for depends on how much the protection matters to you.
How much can I realistically negotiate off a used car?
More usefully than asking for a percentage off, ask what else is in the deal. A dealer has limited room on the price of a car that has only just been advertised and more on one that has been sitting, and they often have more room on the part-exchange figure, on a warranty upgrade, or on including a service than on the headline price. Going in with a specific, reasoned figure based on comparable advertised cars works better than an opening percentage, because the first is checkable and the second is a negotiating position they have heard before.
Do dealers make more from finance than from the car?
They can, and it is a legitimate question to ask. A dealer arranging finance is normally acting as a credit broker and is paid a commission by the lender for the introduction. What changed is that since January 2021 the FCA has banned commission models that let a broker set or adjust your interest rate and be paid more for raising it. Commission itself was not banned, so the question "are you paid for arranging this" is reasonable and the answer should be yes.

Autoza is a marketplace and the dealers on it set their own prices. This page explains how the margin works in general, from HMRC’s published guidance; it is not a statement about what any particular dealer makes.

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