Flipping cars in the UK is not illegal and may people buy and sell cars as a side hustle or hobby. You don’t even need a licence to trade in cars at all in England and Wales, and it can be a great way to learn if selling cars full-time is the business for you.
Below we will cover exactly what you need to do to flip cars and stay on the right side of the law.
Do I need a licence to flip cars?
As we stated above you don’t need a licence to trade in cars at all in England and Wales. You do however require a licence to deal in cars in Scotland. We cover the subject in detail in our article Do you have to have a license to buy and sell cars in the UK?.
But it is a commonly held belief that you require a licence to trade in cars in England and Wales. Some of this must be attributed to the licensing requirements in Scotland and articles relating to licensing requirements in various states in the USA. People may also be confused by the licensing requirements for the sale of fuel from petrol forecourt, which is regulated and does require a licence.
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 exemptions typically include motor vehicle dealers.
Do I have to pay tax on the profits I make flipping cars?
You will have to pay taxes on you car flipping profits if you are doing it legally and making a good level of profit. However HMRC do offer an allowance to individual’s flipping cars as a hobby or testing the water to see if car flipping is for them. This will give you the opportunity to see if flipping cars is the job or side hustle for you without going to the hassle of setting up as a Sole Trader or Limited Company.
Introduced in 2017 the tax-free allowance allows you to make up to £1000 annually without the need to pay any tax. The tax-free allowance applies to both property or any trading income. If you have both types of income, you’ll get a £1,000 allowance for each. Meaning if you also rent property as a side hustle you can earn up to £1000 on that hustle and also pay no tax. If you earn less then £1000 you don’t even need to mention it on your tax return.
You can learn more about it here – Tax-free allowances on property and trading income.
Do I need trade plates to trade in cars?
You don’t need to have trade plates to flip cars, nor do you need to register with the DVLA, however you may want to if you are intending on flipping a large number of cars.
But if you want to drive unregistered and/or untaxed vehicles which are in your possession, then you would need to apply for 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.
It’s worth noting that trade plates only exempt you from the need to tax or register a vehicle and they don’t exempt the vehicle from MOT testing requirements.
What is motor traders insurance and do I need it?
Motor trade insurance is a policy that’s taken out by someone who runs a business in the motor trade and in most cases a policy is specifically tailored to each individual or firm. Trade insurance can cover a wide variety of business types, including everything from vehicle sales and servicing to car valets, breakdown services, mechanics, scrap, salvage and vehicle dismantlers and more. They also cover dealers and operators flipping cars from home as well as part time motor traders polices.
So you will need insurance for the cars you are flipping. However you won’t necessarily require a motor traders policy when you first start out. If you are just flipping one or two cars a year or just testing the water you can insure the cars on a standard policy. But most insurance companies have limits to the number of cars you can insure in a 12 month period. Meaning once you have reached this limit you will no longer be able to swap you Insurance to another car.
But at this point you should already be looking for a motor traders policy. Trade polices aren’t expensive in most cases and are readily available to anyone trading in cars. To qualify for a motor trade insurance policy, all you need to do is to be able to prove that you are running a genuine business that generates an income. These policies will increase your cover to include test drives and public liability insurance.
It is worth noting that motor trade insurance cannot be used simply as a means to get cover for private individuals to drive multiple vehicles, this is covered by a different kind of policy.
Insurance companies will be more than happy to advise you on what cover you require. But most traders take out a road risk policy which covers you for most car flipping activities. A road risks policy allows you to drive your own vehicles as well as driving other vehicles that you don’t own for the purpose of carrying out motor trade activities.
Do I need to register as a business?
If you are flipping the occasional car or again just testing the water you don’t need to register as a business and if you are under the allowance threshold you don’t even need to inform HMRC. But if you are planning to flip cars as a business or side hustle then you will need to register as either a sole trader or set up a limited company.
Setting up as a sole trader is the simplest form of self-employment and the most common way of operating as a small business. You will run the business as an individual and keep any post tax profits. However the down side is that your personal and business assets are not separate. Meaning you’re personally responsible for debts associated with the business. To become a sole trader, all you need to do is register as self-employed with HM Revenue & Customs.
The other option is to setup a private limited company, a company is a separate legal entity and is completely separate from the person owning and running it. The company will have a director (normally yourself) who is responsible for running the company, and at least one shareholder (again normally yourself). The company will need to submit its annual accounts to Companies’ House and a tax return to HMRC. You can get advice from an accountant on how to set a company up and what other costs are involved.
However you choose to setup your business its import you take proper legal advice and consider all the liabilities and advantages.
We cover everything you need to know about setting up as a full time car dealer in our article – How to sell cars as full-time job.
Conclusion
There are lots of myth surrounding flipping car in the UK and it being an illegal activity is definitely one of the more persistent. The myth probably stemmed from the fact that flipping cars is illegal in most circumstances in America. But wherever you are in the world it’s important that you stay the right side of the law and check out you local rules and regulations before you start out.
