Motability has written to all users of the scheme outlining changes to the car leasing scheme for disabled people, with average advance payments rising by around £400 from July
Motability, the vehicle leasing company for disabled individuals, has issued a notice to all users about ‘changes’ amid fears of an average £400 increase due to new taxes. Disabled people who rely on Motability are bracing themselves for higher costs as the car leasing scheme attempts to counterbalance £300 million in new taxes imposed following last year’s budget.
Chancellor Rachel Reeves declared in her November Budget that VAT will be applied to Advance Payments, and Insurance Premium Tax will be levied on Scheme leases. According to Motability, these tax alterations mean the average Advance Payment (initial cost) for a vehicle will rise by approximately £400.
Today, Motability announced changes to mileage allowances, charges for extra mileage, and the introduction of fees if vehicles are taken overseas. Users could also see an increase in advance payments of up to £400 at the commencement of their new lease.
This comes against a backdrop of intense political scrutiny towards the scheme, which enables some disability benefit recipients to allocate some or all of their payments towards leasing a new or accessible vehicle.
On Thursday, Andrew Miller, chief executive of Motability Operations, informed scheme members that changes will be implemented to manage the cost. “Together, these tax changes mean it will cost significantly more to run the scheme,” he stated in a letter.
“If we did nothing, the average cost of a new lease would increase by around £1,100. It was clear to me that simply passing all these costs on to customers was not an option.
“We had to carefully consider how to reduce the tax impact as much as possible but also, focusing on changes that reflect how most customers already use their vehicles.”
He set out proposals to cut annual mileage allowances, raise excess mileage charges, alter tyre replacement limits and bring in a fee for taking vehicles abroad.
It is understood that customers taking out new leases after 1 July will face an average rise in advance payments of between £300 and £400. However, many new vehicles on the scheme will not require an advance payment.
The scheme, which is only available to those entitled to the higher or enhanced rate of the mobility component of disability benefit, is used by approximately 890,000 people. Yet the scope and expense of the programme has attracted considerable criticism.
Last month, Reform UK announced plans to make substantial changes to Motability to “end the abuse” of the scheme. In last year’s autumn Budget, the Chancellor revealed that the scheme would no longer include “luxury cars” such as BMW and Mercedes-Benz models.
Rachel Reeves also confirmed the Government would introduce VAT on advance payments for the scheme, and apply insurance premium tax to leases from July 2026. The DWP has announced that the adjustment will take effect from 1st July – meaning individuals must place their orders before that date or risk paying approximately £400 more.
During a recent parliamentary exchange, MP Neil Duncan-Jordan questioned Chancellor Rachel Reeves: “What assessment she has made of the potential impact of limiting the relief from insurance premiums under paragraph 3 of Schedule 7A to the Finance Act 1994 on disabled people.”
To be eligible for a Motability vehicle, an individual must be in receipt of the higher/enhanced rate of a mobility allowance, such as PIP, DLA, or AFIP, with a minimum of 12 months remaining on their award.
Dan Tomlinson, Exchequer Secretary to the Treasury, confirmed the crucial date and explained the modifications were designed to generate savings: “At Budget 2025, the government announced reforms to the Motability scheme, which will save over £1 billion over the next five years.
“The VAT relief for top-up payments made to lease more expensive vehicles will be removed for new leases from July 2026, and Insurance Premium Tax will apply at the standard rate to insurance contracts on the Scheme. The VAT reliefs on weekly lease costs and vehicle resale will remain in place, and the tax changes will not apply to vehicles designed, or substantially and permanently adapted, for wheelchair or stretcher users.
“These tax changes ensure Motability can continue to deliver for its customers, for example, through the continued provision of a broad range of vehicle models available without any top-up payments.” The Disability Rights UK organisation clarified that the changes will not affect some users: “At the Autumn Budget, the Government confirmed that Value Added Tax (VAT) will apply to Advance Payments and Insurance Premium Tax (IPT) will apply to Scheme leases. These changes will take effect from July 2026. The Government have confirmed that VAT will not be added to wheelchair accessible vehicles.
“These tax changes will mean the overall cost of providing the Scheme will become more expensive but will remain sustainable with a choice of affordable vehicles for those who use it. The Motability Scheme will seek to make changes to the leasing package so that these additional costs can be absorbed where possible.”
