It is all related to VAT!

Hi Thewick, new cars attract VAT on the full selling price, which the customer pays to the dealer who passes it on to the tax man, just like any other VAT rated item.

Used cars however are treated differently - the dealer pays VAT on the difference between what he bought the car for & what he sold it for (this is VAT inclusive not plus). So if he bought a car for £2,000 & sold it for £3,000 he has a margin of £1,000. Thus the VAT the dealer pays is £166.67.

On the other hand, if he reduces the price to you, then this difference is less thus his VAT liability is less.

As long as this reduction in the selling price is matched by an equivalent reduction in the price he gives for your PX then you have given (not paid) the same for your new car (PX + £XXX) & he has made a bit more on the deal as his VAT is less.

All completely legal & above board, as the legal transaction is shown on the invoice, not the advertised price or the price on the order form

Edited by bonzo dog on 06/04/2011 at 23:46