The Motability Scheme is changing as new rules increase costs from July
People using the Motability Scheme are being warned about upcoming tax changes. Fresh changes coming into force from July 1 will increase costs for new vehicle leases, officials say.
The Motability Scheme enables those in receipt of a disability benefit, with eligibility for the higher or enhanced rate of the mobility component, to redirect part or all of their payment towards leasing a new car, wheelchair-accessible vehicle, scooter or powered wheelchair. But the scheme, which currently has 815,000 customers throughout Great Britain, is changing soon – and many people will have to pay more.
The Motability Foundation announced in a statement today: “Last year, in the UK Government’s Autumn Budget, tax changes were announced that will affect the Motability Scheme. From 1 July 2026, VAT and Insurance Premium Tax (IPT) will apply to leases on the Motability Scheme.
“As a result, leasing a vehicle will become more expensive and it will cost significantly more to deliver the Scheme. For customers who already have a lease on the Motability Scheme nothing is changing right now.” Officials confirmed the modifications will be implemented throughout the UK, with the exception of Scotland.
The Motability Foundation, which supervises the Motability Scheme, says it has collaborated extensively with Motability Operations to determine the most effective approach to minimising the financial burden of the Government’s new tax framework on customers. It noted: “Motability Operations have carefully considered how to protect the core Scheme package, while ensuring the Scheme remains as affordable as possible and sustainable for the long term.
“The Motability Foundation recognises that increased vehicle costs could significantly affect disabled people’s ability to access the Scheme. We will continue to provide grants to Scheme customers, delivering our commitment to spend up to £650 million across all our activities by 2030. However, as part of the changing landscape, we are considering how our grant programmes best support disabled people with the funding we have available.”
There are several key points to note. The changes apply to new applications submitted on or after Tuesday, July 1 2026.
If you currently hold a lease, nothing is altering for you at present, Motability officials say. Where VAT is applied to a lease, it will not affect the lease payments deducted from your mobility allowance. Rather, VAT will be charged at the standard rate on other lease costs including your Advance Payment, excess mileage fees and early termination charges.
Regarding mileage allowance, new leases will feature:
- Cars: 30,000 miles across three years.
- Wheelchair Accessible Vehicles: 50,000 miles across five years.
Officials say that approximately three-quarters of customers travel within this revised allowance, with an average of around 7,500 miles annually. Customers will have the option to pay for additional miles beyond this allowance, the foundation says.
It added: “We recognise that some customers may need to drive more miles for a variety of reasons, and we are currently looking at ways we may be able to mitigate the impact of these changes for customers in some limited exceptional circumstances.”
On tyre replacement, from 1 July, a Scheme lease will cover:
- Up to six tyres during a three-year lease, with up to four replacements available for accidental damage.
- Up to 10 tyres during a five-year lease, with up to six replacements available for accidental damage.
Typically, customers require two tyre replacements throughout a three-year lease period, and these revised limits have been established to accommodate what the majority of customers require through normal usage, the foundation says. Regarding EU breakdown cover, motorists can still travel abroad with their vehicle, but will be required to request a VE103 form from the RAC and settle an administration charge.
Last year, less than one percent of customers utilised EU breakdown cover. For existing lease holders, Motability representatives confirm that nothing will alter during your current agreement at this stage.
They emphasise that these changes only affect new applications submitted from July 1 2026 onwards.
What remains unchanged with Motability?
Scheme leases will continue to provide insurance for up to three drivers, servicing and maintenance, UK breakdown cover, and assistance from the dedicated team of Scheme advisors. If you’re uncertain how these alterations impact you, get in touch with the Motability Scheme.
The organisation states: “When considering changes, priority has been given to protecting what matters most to disabled people, reducing the impact of the tax changes as far as possible and providing good value. Alongside Motability Operations, we remain dedicated to providing the Motability Scheme now, and for years to come, with a continued strong focus on customer service, affordability and choice.”
The forthcoming changes aren’t the sole matter requiring attention. The new spring pricing catalogue for leasing arrangements will be published on the Motability Scheme website on April 1.
The pricing catalogue is updated every three months, with the current price list for leasing arrangements having taken effect on January 1 and running until the end of March.
The impact of the changes on people using Motability
David Smith, Labour MP, this month asked the DWP in Parliament what steps it was taking to ensure that changes to the Motability Scheme, “including the removal of VAT zero-rating on advance payments and the introduction of Insurance Premium Tax on certain vehicles, do not disproportionately impact disabled individuals in rural areas who require higher-specification vehicles capable of handling adverse road conditions.”
DWP minister Sir Stephen Timms replied to say: “The Motability Scheme is a lifeline for many disabled people and families, supporting their independence by enabling them to lease a car, wheelchair accessible vehicle, scooter or powered wheelchair in exchange for an eligible disability benefit allowance.
“The Scheme will continue to offer a choice of vehicles, to meet a range of accessibility needs. The changes announced at the budget will not apply to current leases or wheelchair adapted vehicles, and the Scheme will continue to offer vehicles which require no advance payment, meaning that people will be able to access a suitable vehicle using only their qualifying disability benefit.
“The Scheme will continue to offer a full ‘peace of mind package’ – including insurance and UK breakdown cover – and provide means-tested grants to support eligible people who would otherwise struggle to afford the advance payment. Proposed changes to the leasing package will undergo disability impact assessment by the Motability Foundation, which oversees the Scheme.”
