Selling Used Car Warranties: A UK Dealer Guide (2026)

Last updated 29 September 2026.

Most used car buyers ask about a warranty, and offering one can help close the deal and add profit to it. It also brings rules with it: a warranty sits on top of the customer’s statutory rights, an insurance-backed one is a regulated insurance product, and the VAT and insurance premium tax depend on who carries the risk. This guide covers the types of dealer warranty, the FCA, VAT and IPT position, invoices, claims and choosing a provider.

This is general guidance, not legal or tax advice. It is based on the FCA Handbook, HMRC guidance and the Consumer Rights Act 2015 as published in September 2026. How a warranty is regulated depends on exactly how your scheme is set up, so check with your warranty provider, the FCA or your accountant before you rely on it.

Dealer warranties in short

A warranty is extra to the customer's Consumer Rights Act rights. It never replaces them.
In-house warranties are your own promise and your own risk. Insured warranties put the risk with an insurer.
Selling an insured warranty is insurance distribution, which needs FCA permission or appointed representative status.
A separately charged in-house warranty is standard-rated for VAT. An insured warranty can be VAT exempt if you disclose the premium and fees.

What is a dealer warranty?

A dealer warranty is a promise to repair or pay for faults in listed parts of the car for a set time or mileage after the sale. The promise can come from you (an in-house warranty), from an insurer through a warranty company (an insured warranty, often called mechanical breakdown insurance), or from the manufacturer if the car is still within its original warranty.

HMRC describes a warranty as “an undertaking or guarantee that you give to your customer”: if the car proves faulty within a specified time or mileage limit, you bear the cost of repairs or replacement parts (GOV.UK: other products affecting the second-hand vehicles margin scheme).

A warranty is extra to the customer’s statutory rights

A warranty adds to the customer’s rights under the Consumer Rights Act 2015. It does not replace them. Citizens Advice puts it plainly: “Warranties and guarantees add to your legal rights” (Citizens Advice: claim using a warranty or guarantee).

Whatever warranty you give, a car you sell to a consumer must be of satisfactory quality, fit for purpose and as described. If a fault shows up within six months of delivery, the Act presumes it was there on the day of delivery unless you can show it was not (Consumer Rights Act 2015, section 19). Our guide to the legal requirements for running a used car dealership covers the right to reject, repair and refund in more detail, and why a term that tries to cut those rights down is not binding on the customer.

So a customer back three weeks after buying with a gearbox fault is a statutory rights question first, not a warranty claim. “That part isn’t covered by your warranty” does not end your responsibility. Our Consumer Rights Act guide for used car dealers walks through how to handle these complaints.

Types of used car warranty

There are three main types, and the difference that matters is who carries the cost of a claim.

	In-house warranty	Insured warranty	Manufacturer warranty
Who pays claims	You, often from a fund you set aside	The insurer	The manufacturer
Is it insurance?	Unlikely, if it stays within your usual quality obligations	Yes	Not your product
FCA permission to sell	Not usually	Yes, or appointed representative status	Not applicable
VAT if charged separately	Standard-rated	Can be exempt if conditions are met	Not applicable

In-house (self-funded) warranties

With an in-house warranty, you promise to fix faults and you pay for the repairs, sometimes from money set aside on each sale, sometimes with a warranty company handling the paperwork while you keep the risk.

The FCA’s perimeter guidance says an obligation “of the same nature as a seller’s or supplier’s usual obligations as regards the quality of the goods” is unlikely to be insurance (FCA Handbook: PERG 6.7). It gives motor dealer examples at PERG 6.7.17G, including a verbal promise to fix faults for a set period, a warranty the dealer runs itself under the sales contract, and a warranty booklet administered by a third party where the dealer still carries the risk.

The same guidance sets limits. A warranty is more likely to be insurance if it is taken on by someone other than the seller, or is “significantly more extensive in content, scope or duration” than a seller’s usual obligations (PERG 6.7.11G). And if you promise an indemnity and then insure your own cost, PERG 6.7.16G says you are still effecting a contract of insurance.

Insured warranties (mechanical breakdown insurance)

With an insured warranty, the customer gets a policy and an insurer pays the claims. The Motor Ombudsman lists mechanical breakdown insurance separately from service contracts (guarantees and extended warranties) in the products its warranty code covers (The Motor Ombudsman: Vehicle Warranty Products Code). Caravan and motorhome warranties usually also depend on an annual habitation check.

For the customer, Citizens Advice notes the cover can still be valid if the trader goes out of business. For you, it moves the claims risk off your books, but it is a regulated insurance product, which brings the FCA rules below.

Manufacturer warranty still running

A newer used car may still be within the manufacturer’s warranty. That cover comes from the manufacturer, on the manufacturer’s terms, so check what the terms require (such as servicing) before you mention it in an advert. Record the expiry date against the car so the sales team quotes it correctly.

What a used car warranty usually covers

Most used car warranties cover the sudden mechanical or electrical failure of listed parts. They do not usually cover servicing, wear and tear or faults that were there before the cover started. Cover and limits vary widely between providers and levels, so compare policy wording rather than brochures. The main things to look at are:

Parts covered. Either a list of named components, or everything except a list of exclusions.
Claim limits. A maximum per claim, a maximum over the life of the warranty, or both. Some are tied to the value of the car.
Labour. Whether labour is paid in full or capped at an hourly rate, which matters if the customer’s local garage charges more.
Excess. Whether the customer pays anything towards each claim.
Eligibility. Limits on the age and mileage of the car at the start of cover.
Conditions. Servicing on time, reporting faults promptly, and getting authorisation before work starts.

Included as standard or sold as an upsell?

Both work, and you can do both: a short warranty included with every car and a longer one offered for an extra charge. The choice changes how you price it, how you invoice it and the VAT.

Included as standard. The cost is built into the car’s price. HMRC says the selling price must include the cost of the warranty and your invoice should make clear that no separate charge is being made for it (GOV.UK: margin scheme and warranties).

Sold as an extra. You price the warranty from the provider’s cost (or your expected claims, for an in-house scheme) plus your margin. For an insured warranty to be VAT exempt, HMRC’s conditions include that the customer is free to buy the car without it, so do not make an insured warranty a condition of sale.

Do you need FCA authorisation to sell warranties?

If the warranty is insurance, yes. Selling an insured warranty is insurance distribution, and you need FCA permission or to act as an appointed representative of a firm that has it. A simple in-house warranty within your usual obligations is unlikely to be insurance, as above.

Arranging a contract of insurance for a customer, including helping them complete an application, is a regulated activity under article 25 of the Regulated Activities Order (FCA Handbook: PERG 5.6). There is an exclusion for businesses that sell insurance alongside the goods they supply, but it only covers “non-motor goods”, which the legislation defines as goods that are not mechanically propelled road vehicles (Regulated Activities Order, article 72B). The FCA confirms the exclusion applies to goods “other than motor vehicles” (FCA: insurance sellers and authorisation). A car dealer cannot rely on it.

That leaves two routes, according to the FCA:

Apply for the insurance permissions yourself.
Become an appointed representative of a firm with the relevant insurance permission. The FCA says you can do this for insurance distribution if you hold limited permission for credit broking, but not if you are authorised with full credit permissions.

An appointed representative carries on regulated activity under the responsibility of the principal, which must make sure the AR is fit and proper and follows the FCA’s rules. An introducer appointed representative is a narrower role that can only make introductions and distribute financial promotions for the principal (FCA: appointed representatives and principals). Ask your provider which kind of appointment they are offering and what it lets your staff say and do.

Your finance and insurance permissions interact, so check the whole picture with your provider or the FCA before you start selling.

VAT on used car warranties

The VAT depends on who carries the risk and whether you charge separately. HMRC’s guidance for margin scheme dealers says:

In-house warranty, charged separately: standard-rated. The charge must not be included in the car’s selling price for the margin calculation, and you account for VAT on it outside the scheme.
In-house warranty, included free: the car’s selling price includes the cost, and the invoice should show that no separate charge is made.
Insured warranty: exempt when it is a contract of insurance between the insurer and your customer, it is your customer’s risks that are insured, the customer is free to buy the car without it, and you disclose the premium and any fees or commission.

(GOV.UK: other products affecting the second-hand vehicles margin scheme)

HMRC’s internal manual says the disclosure must be evidenced on the sales invoice. If it is not, any fee or commission you earn becomes standard-rated and has to come out of the car’s selling price and be dealt with outside the margin scheme (HMRC manual VATMARG08400). The same page warns officers to look for value shifting, where the warranty price is pushed down and the car price up.

Our guide to the VAT margin scheme explains the margin calculation itself. Ask your accountant to check your warranty set-up.

Insurance premium tax on insured warranties

Insurance premium tax (IPT) is a tax on insurance premiums, so it applies to insured warranties and not to your own in-house warranty. There are two rates: a standard rate of 12% and a higher rate of 20% (HMRC Notice IPT1).

Notice IPT1 says the higher rate applies to a premium relating to a motor car if the contract is arranged through or supplied by a supplier of motor cars, or a person connected to one. It does not apply to insurance provided to the customer free of charge. The insurer registers for and accounts for IPT, not you, but it is part of the price, so check whether your provider’s quote includes it.

Showing warranties on adverts and invoices

Say exactly what the customer gets and whether it costs extra. On an advert, “3 months’ in-house warranty included” or “insured warranty available at extra cost” is clear. “Full warranty” is not. Describing cover you cannot back up is a misleading claim, and our legal requirements guide covers the advertising rules.

On the invoice:

a warranty you charge for goes on its own line with the right VAT
an insured warranty shows the premium and any fees or commission
a warranty included in the price is stated as included with no separate charge

Give the customer the warranty terms at the sale. If you give a guarantee at no extra charge, the Consumer Rights Act says it must be in plain, intelligible English, say that the customer’s statutory rights are not affected, and give your name and address and the guarantee’s duration and territorial scope. The customer can ask for it in writing (Consumer Rights Act 2015, section 30).

Handling warranty claims

Start by deciding whether the fault is a statutory rights issue or a warranty claim. A fault soon after sale is usually your responsibility under the Consumer Rights Act whatever the warranty says. After that:

Log the complaint with the date, mileage and what the customer reports.
Check the warranty terms for the part, the claim limit and any conditions, such as servicing or authorisation before work starts.
Contact the administrator before any repair for an insured warranty. For an in-house warranty, agree the repair and keep the invoices.
Keep the customer updated and put any decline in writing with the reason.

If the business is accredited to The Motor Ombudsman, a customer who is unhappy with a warranty decision can take it there once the business has given its final response or eight weeks have passed. The service is free for consumers, and if the customer accepts the final decision it becomes legally binding on both parties (The Motor Ombudsman: make a complaint).

Choosing a warranty provider

Choose on the policy wording and how claims are handled, not on the cheapest price per car. Questions to ask:

Is the product insurance-backed? Who is the insurer, and can you check the firms on the FCA register?
How will you be allowed to sell it: your own permission, or as their appointed representative? Which kind of appointment, and what oversight will they carry out?
What are the claim limits, labour rate, excess and exclusions for each level?
Who handles claims, how quickly, and can the customer use a garage near them?
Is the provider accredited to The Motor Ombudsman’s Vehicle Warranty Products Code? Accredited providers commit to clear information, fair claims handling and a cancellation period of at least 14 days.
Does the price include IPT and fees, and how should commission be shown on your invoice?
For a self-funded scheme, who holds the fund, and what happens to money that is not claimed?

Common mistakes

Mistake	What to do instead
Treating an early fault as "not covered by the warranty"	Deal with it under the Consumer Rights Act first. The warranty is extra.
Selling insured warranties without FCA permission	Get the permission or an appointed representative agreement in place before you sell.
Making an insured warranty compulsory	Let the customer buy the car without it. It is a condition of the VAT exemption.
Not showing the premium and commission on the invoice	Disclose them, or the fee or commission becomes standard-rated.
Loading the price onto the warranty to cut VAT on the car	Price both at their real value. HMRC looks for value shifting.
Offering an in-house warranty far wider than a normal quality promise	Check it with the FCA guidance or a provider. It may be insurance.

How Haswent helps

Haswent keeps the warranty side of each sale on record, whichever provider you use:

Under Settings > Products you set up each warranty as a product in the Warranty category, with its sales price, sales tax, purchase price and purchase tax, and whether a 0% product is zero-rated or exempt.
You add products to a deal and they go on the sales invoice as their own lines with their own VAT rate.
Under Settings > Warranties you describe the warranty types you offer, choose one on each car in stock and record the manufacturer warranty expiry date.
Sales commission policies can pay a separate rule for warranty products, and the Xero sync can post each product category to its own sales account.

Sources

Frequently asked questions

Do used car dealers have to give a warranty?

No. A warranty is something you choose to offer, either included in the price or sold as an extra. What you cannot opt out of is the customer's rights under the Consumer Rights Act 2015: a car sold by a dealer to a consumer must be of satisfactory quality, fit for purpose and as described, whether or not it comes with a warranty.

Does a dealer warranty replace the customer's statutory rights?

No. Citizens Advice describes warranties and guarantees as adding to a customer's legal rights, not replacing them. If a fault shows up within six months of delivery, the Consumer Rights Act presumes it was there when the car was handed over unless you can show otherwise, so treat early faults as a statutory rights issue first.

Do I need FCA authorisation to sell car warranties?

It depends on who carries the risk. A simple in-house warranty that stays within your usual obligations on quality is unlikely to be insurance, according to the FCA's perimeter guidance. An insurance-backed warranty is a contract of insurance, and the exclusion for insurance sold alongside goods does not cover motor vehicles, so you need FCA permission or to be an appointed representative of a firm that has it. Check your set-up with your provider or the FCA.

Is VAT charged on a used car warranty?

HMRC says a warranty you give yourself and charge for separately is standard-rated, and the charge must be left out of the margin scheme selling price. An insured warranty can be exempt when the contract is between the insurer and the customer, it covers the customer's risks, the customer can buy the car without it, and you disclose the premium and any fees or commission.

Is there insurance premium tax on car warranties?

Insurance premium tax applies to insurance premiums, so it affects insured warranties. HMRC's IPT notice says the higher rate, currently 20%, applies to insurance relating to a motor car that is arranged through or supplied by a supplier of motor cars. The insurer accounts for the tax, and the higher rate does not apply to insurance given to the customer free of charge.

What is the difference between a warranty and mechanical breakdown insurance?

A dealer warranty is your own promise to repair faults, and you carry the cost. Mechanical breakdown insurance is a policy between an insurer and the customer, and the insurer carries the cost, which Citizens Advice notes means the cover can still be valid if the dealer goes out of business. Many products sold as used car warranties are insured, which makes them mechanical breakdown insurance.

Can a customer cancel a used car warranty?

Warranty providers accredited to The Motor Ombudsman's Vehicle Warranty Products Code commit to a cancellation period of at least 14 days. For other products, the cancellation terms are in the policy or warranty booklet, so check them and explain them to the customer at the point of sale.

Selling Used Car Warranties: A Guide for UK Car Dealers