VW's scheme comes almost two years since the firm admitted to cheating diesel pollution tests with the use of manipulated engine management software, subjecting it and the industry to intense pressure to cut pollution.
Auto manufacturers have been under increasing political pressure, especially in Germany, to encourage consumers to buy less polluting cars.
Electric vehicles (EVs) and hybrids will be covered by the scheme, which means that customers could save up to £10,000 on an EV purchase if the scrappage scheme is combined with the UK Government's £4,500 grant for electric and low-emission vehicles.
The offer stands for any make or model of diesel auto first registered in the United Kingdom before December 2009, and marks another recovery effort from the company battered by a massive emissions scandal two years ago.
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The EU's new emissions tests, launched today, will require all new cars to undergo much stricter testing before they hit the showroom.
Electric and hybrid vehicles, which attract government grants, will be included in the scheme.
"We've seen a bit of a drop in the United Kingdom vehicle market this year after years of really accelerated growth".
He said VW's scrappage incentives would vary from country to country due to factors such as transport costs and vehicles being cheaper in its home market. The UK offer builds on VW's scrappage scheme now in place in Germany.
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All vehicles exchanged will be scrapped and processed at authorised treatment facilities run by Autogreen.
He added that by matching rival offerings VW will probably keep its advantage over its opposition.
The cars have to be ordered by 31 December 2017 and the trade-in vehicle needs to have been owned by the customer for at least six months.
Customers can get a discount of £2,000 off models including Aygo, Prius and Hilux, and £4,000 off a Land Cruiser.
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Toyota GB president and managing director Paul Van der Burgh said: "Our scrappage scheme is a win-win solution".