Used car buyers face double price rise in January

Used car buyers could face a price rise double whammy from 1 January, warns independent car advice site honestjohn.co.uk. As well as the seasonal bounce that traditionally adds £500 to an £8,000 used car in January, today’s confirmation from Chancellor Alistair Darling that VAT will be going back up on January 1st 2010 means used car buyers also face the prospect of paying extra VAT – something that’s often overlooked when buying a second-hand car.

“Many people think that once VAT has been paid on a new car, that's it. No more VAT apart from the VAT on the dealer's profit” explains Dan Harrison, Editor, Honestjohn.co.uk.  “But between 50 and 70 per cent of cars that go into the used market up to four years old are what are known as VAT Qualifying Cars.

“On a new Qualifying car bought as a 'business purchase', for example to be leased or hired, the VAT can be reclaimed by the purchaser.  When the car is re-sold into the trade, the VAT element is itemised and the dealer who buys the car for stock also reclaims the VAT.

“But for the private buyer, there’s no way to recoup the VAT.  And with Alistair Darling confirming today that VAT is going back up to 17.5% on 1st January 2010, combined with the traditional jump in prices in the New Year, that equates to another 2.17% on the price of a used car.  That is, unless dealers are prepared to swallow the VAT increase to win sales.

“So although the pressure will be on personal finances in the run-up to Christmas, it could make huge financial sense to complete that used car purchase now rather than leave it to January.”