Home Trading
A beginners’ guide to buying and selling used vehicles.
We all love a bargain. Whether it’s a fantastic find in the January sales or a fabulous car for not a lot of coin, there’s a genuine adrenaline rush when you know you’ve got a bargain.
If you pride yourself on your ability to buy good cars cheaply, then you might have considered selling them as well. After all, if you know you got the car cheap, you also probably know there’s a profit in it.
If you’re tempted to sell it for a markup, though, you need to be careful. One or two cars a year is fair game – you can sell them privately and if you make a few quid it’s your gain. But if you intend to start buying and selling regularly then you need to set yourself up properly, otherwise you might get an unpleasant knock on the door from the tax-man or, worse, the local trading standards officer. There’s a fine line in establishing at what point you become a trader, though the general rule is that if you buy a car specifically to sell and make money, you’re trading.
Do things properly, though, and there’s a lot of enjoyment to be had from buying and selling as a part-time home trader. Here are the key things you need to know.
Premises
Trading vehicles from home is perfectly legal, but if you have limited parking then you’re at risk of upsetting the neighbours. You also need to check with your local planning department that there aren’t any restrictions in place on using your home to sell cars. Also, you can’t advertise them with signs in the window as that makes your house a commercial premises, so advertise them elsewhere if you keep them at home.
If you don’t have the space, look for somewhere locally where you can keep cars – some self-storage centres have hard standing space at an affordable rate or, if you live in a rural area, you may find a local farm or smallholding with available space. Plus, you can deduct the monthly rent from your taxable profits.
Insurance
Having proper motor trade insurance is essential if you’re going to be buying and selling cars regularly, and it’s not prohibitively expensive.
Be aware, though, that it doesn’t afford the same level of cover as a standard motor policy. There are different levels of cover as well, from road risks only, which effectively gives you third party cover on the public road, to fully comprehensive, though not all trade insurers will include add-ons such as windscreen cover and accident recovery, which you may get on your standard insurance.
The most significant factor is that motor trade insurance assumes you can buy cars at trade prices, so at-fault claims will generally only cover the trade value of the car. However, if the car is damaged by another driver and the accident isn’t your fault, then you should normally be covered at full retail value as your loss is considered to be how much you would have sold the car for, rather
than what you bought it for. Do your homework: not all insurers are the same.
Also, with the Motor Insurance Database (MID) keeping a computerised record of all cars insured in the UK, it’s mandatory that any car you keep in stock is recorded on the database. While trade insurance generally covers you to drive any car (albeit with some exclusions, such as high-performance models or those of a very high value), it’s your duty to ensure those cars are registered on the MID. This isn’t as onerous as it sounds. Most trade insurers have a simple web form you can fill out that adds any car you buy to your policy immediately, with no additional service charge.
When adding a car to the MID, you’ll usually be given two choices: Trade Use or Personal Use. The latter allows you to use your car for social and domestic purposes as well as for trade, so if you fancy driving around in a stock vehicle for a bit, make sure you tick this option. The Trade Use option isn’t purely for sales cars, but also for those you may be preparing or fixing. It’s easy to get caught out by this if you’re unaware, and there’s rarely a charge for adding personal use.
You can put your own personal vehicles on the policy, too, provided you’re prepared to accept them as being insured only at their trade rather than retail value. This is especially useful if you regularly change your own car, or if you have a partner who has a family vehicle, and you don’t wish to pay for a separate policy.
Pricing for trade insurance varies in line with standard insurance practice, so your postcode, driving record, experience and no-claims status all play a part. In our experience, the cost of a trade policy is normally between two and three times the price of standard cover. That’s not a lot when you consider that you can normally insure an unlimited number of cars.
Stock
Buying cars to sell-on isn’t as straightforward as it used to be, as the majority of the large auction houses have buyers’ fees that make dealing with cheaper cars, in particular, tough for home traders. And if you’re just starting out then chances are you won’t be dealing in high-end vehicles.
Nevertheless, some of the small independent auction houses are still relatively cheap to buy from, with Anglia Car Auctions and Letchworth Motor Auctions being geared up to suit smaller traders. We’ve also had a lot of success sourcing cars privately, as there are plenty of sellers out there that simply don’t present a car properly for sale. Internet sales sites such as gumtree.
co.uk and shpock.co.uk can often throw up a real bargain, while internet auction sites such as ebay are also excellent sources of stock if you’re prepared to put in the time scouring the ads and finding the best deals.
In recent months, Facebook has become a great source of cheap cars, and they’re often local to you as well. Look for the ones that are badly photographed or have limited descriptions, as it’s lazy sellers who often have the best bargains on offer.
Also, if there’s a particular make of car that you know really well, it pays to specialise and market to enthusiasts of such vehicles – I sell a lot of MG Rover cars, having learned my trade by repairing them. If you know the common faults on a particular type of vehicle and can fix them, then buying in ‘spares or repairs’ vehicles and doing the work yourself can prove quite fruitful if done properly.
Contingency funds and warranties
Don’t expect any car that you buy-in to go straight out the door again without spending money on it. Simple things such as minor body damage or missing trim can put off a buyer, but are relatively inexpensive to fix. For example, getting one panel painted for £150 can add more than twice that amount to its retail value. So for each car you buy, set aside a chunk of cash to refurbish it. And remember that any parts you need to buy or any garage bills you incur for repairs, a new MOT or bodywork become business expenses, so are deductible from your tax liability.
While there’s no prerequisite for selling a used car with a warranty, the customer is protected up to a point by the Sale of Goods Act. No amount of ‘Trade sale’ or ‘Part-ex to clear’ wording can protect you from this, although selling a car for ‘spares or repair and not suitable for road use’ will cover you if there’s a problem you can’t get sorted.
If something goes wrong with the car in the first 30 days of ownership and the buyer can prove it was ‘not fit for purpose’ then you may be liable to give them their money back or pay for the repairs. It’s an ambiguous area of the law, though, because if, say, a cambelt were to snap two weeks after the customer bought the car, you could argue it was suitable for purpose on the day of sale. It depends largely on whether you want to risk your reputation should it end up in the small claims court.
Cleaning stuff
A good supply of high-quality cleaning materials is your best friend. Selling a car is all about presentation, so a thorough valet inside and out will help it sell. It’ll also add to its value, as a wellpresented car is more alluring to a buyer than a vehicle that has only had a cursory spruce-up. Indeed, buying grubby cars and selling clean ones can be a lucrative process in itself – invest a day in making a car look good and it’ll reap rewards.
Don’t skimp on the quality of your cleaning gear. Expensive polishes and waxes are pricey for a reason: the finish is superb and there’s usually far less effort than applying cheaper ones.
We highly recommend Poorboy’s Dakota Odour Bomb for any car that smells strongly of cigarette smoke. It’s available from Amazon and ebay among others, and is the only product we’ve ever found effective at ousting the smell for good. It comes in a pressurised tube – simply set it off, close the doors and leave the car closed for 48 hours. Come back and it’ll smell showroom fresh.
Accounting
Get an accountant. Find a good one and their services will pay for themselves, as well as keeping track of your income and expenditure, and advising on any tax benefits that may be due to you that you won’t necessarily be aware of.
It’s helpful to find an accountant who has experience of the motor trade as they will have insider knowledge of particular benefits that are applicable to your business. If you know anyone else who is trading cars, ask them who does their accounts – a personal recommendation is always better than simply plucking a name out of the phone book.
Keep detailed records of every car you acquire, including its purchase price (referred to in the trade as its ‘stand-in value’) and anything you spend on parts and repairs, plus the cost of advertising it. You also need to keep a record of other expenses, such as your cleaning materials and travel costs to and from collecting a vehicle. Anything you spend on the business is a perfectly legitimate tax deductible expense, including a proportion of general expenses such as telephone bills.
Conclusion
Starting up as a part-time home trader isn’t going to make you a millionaire overnight, but as a source of supplementary income, a self-funding hobby or a good way of trying out all the cars you’ve always fancied driving, it has a lot going for it. But stay legal – don’t be tempted to bodge any faults and accept that, for every 10 good cars you buy and sell, there’ll be one that bites you on the bum and incurs a loss. That’s life – but for a pastime that earns you some beer money, part-time home trading is very good fun indeed.