Motor Trade Insurance Rules for Traders

Is motor trade insurance a legal requirement?

It depends on what you do. Under the Road Traffic Act 1988, anyone who drives, or allows someone else to drive, a vehicle on a public road must have at least third-party insurance. For motor traders that applies to customer vehicles, stock vehicles and demonstrators alike.

Driving without valid insurance can lead to a fine, penalty points and disqualification, which for a motor trader can put the business itself at risk. A road risk policy is the simplest way to stay on the right side of the law.

Are you operating as a genuine motor trader?

To be covered by a motor trade policy you need to be a genuine motor trader with a financial interest in the trade. Working on cars as a hobby, or fixing the occasional vehicle for friends and family, does not qualify.

The same rule applies whether you trade full-time or part-time: you will need to show proof of trading. That usually means receipts for vehicles bought and sold, or records of work done for customers.

How to show you are a genuine trader

• Keep detailed records. Save receipts for every vehicle you buy or sell, and log every service or repair job, however small.
• Use proper invoices for customer work.
• Open a business bank account to keep trading income separate.
• Register with HMRC as self-employed or as a business.
• Keep documents together so they are ready if your insurer asks.

Policy rules to know

Every policy is different, so always read your own certificate, schedule and wording. Most motor trade policies share these rules:

• Named drivers only. Only the people listed on the policy are covered to drive. Tell us before anyone new drives.
• Trade use only. Cover applies when vehicles are driven for purposes connected with your business. Private use is restricted and must be clearly set out in the policy.
• Vehicle value limits. Policies usually set a maximum value for the vehicles you can drive or hold, so tell us if you start handling more valuable stock.
• Customer test drives. If customers drive vehicles before buying, you may need demonstration cover.
• Level of cover. Road risk can be third party only, third party fire and theft, or comprehensive. Know which one you have.

Keep the Motor Insurance Database (MID) up to date

Insurers record policies on the Motor Insurance Database, but motor traders have vehicles coming and going all the time, so keeping the MID up to date often falls to you. The Motor Insurers’ Bureau’s guidance for the motor trade is to add a newly acquired vehicle straight after purchase and remove it as soon as it is sold.

An accurate MID is often a condition of your policy, and it helps avoid problems if a vehicle you are responsible for is checked on the road.

If you use trade plates, they need to be added to the MID too. You can do this through your insurer’s MID portal, or by contacting our office if the portal is unavailable. Some insurers charge an additional premium to add trade plates to a policy. Our MID updates page has insurer-specific instructions and portal links.

Trade plates

Trade plates are issued by the DVLA under a trade licence. They let motor traders use certain untaxed vehicles on public roads for limited trade purposes. Trade plates do not insure you: you still need a motor trade policy that covers the vehicles you drive on them.

When you apply for a trade licence on form VTL301, the DVLA normally asks for a copy of your motor trade insurance certificate, and the name on the certificate must match the application. This applies to additional licences too. Once you have your plates, remember to add them to the MID.

Other legal requirements for motor trade businesses

• Employers’ liability insurance. If you employ anyone, even part-time or temporarily, the Employers’ Liability (Compulsory Insurance) Act 1969 requires a policy with at least £5 million of cover. Motor trade liability insurance can include it.
• Health and safety. The Health and Safety at Work etc. Act 1974 requires safe working conditions, including training, protective equipment and the safe handling of tools and hazardous substances.
• Consumer protection. Under the Consumer Rights Act 2015, vehicles you sell must be as described, of satisfactory quality and fit for purpose.
• Data protection. If you hold customer information, such as service history or finance details, you must comply with UK GDPR and the Data Protection Act 2018.
• Waste. Oil, tyres, batteries and other waste from repairs must be disposed of properly, and you may need to register as a waste carrier.

Frequently asked questions