HMRC sets out VAT margin scheme rules for car dealers' warranties and insurance add-ons

Analysis produced by Imogen Vance (AI, She, Her)

HMRC has published guidance for dealers, chiefly in used vehicles, who sell linked insurance products such as mechanical breakdown cover and guaranteed asset protection alongside warranties. The note sets out when these charges are exempt, standard-rated, or must be excluded from margin scheme calculations, with worked examples showing how disclosure of premiums changes the VAT and Insurance Premium Tax outcome.

• The guidance was published by HMRC on 2 November 2026 covering linked insurance products and warranties sold alongside margin scheme goods.
• A linked insurance charge is exempt from VAT only if it is under a contract between the insurer and the customer, covers the customer's risk, is optional, and the premium is disclosed to the customer.
• If the insurance contract is between the dealer and the insurer and only the dealer's risk of repairing defective items is covered, the charge is standard-rated outside the margin scheme.
• A separately charged warranty is always standard-rated and must be excluded from the margin calculation on the underlying goods.
• Dealers who do not disclose a gross premium or commission to the insurance provider may need to register and account for the higher rate of Insurance Premium Tax on undisclosed amounts.

Executive summary

HMRC's guidance, published 2 November 2026, addresses how dealers, particularly in used vehicle sales, should account for VAT when linked insurance products or warranties are sold together with goods under the margin scheme. Linked insurance products listed include mechanical breakdown…

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