The changes aim to align the scheme more closely with the broader vehicle leasing market
Reforms to the Motability scheme are set to proceed this summer despite mounting opposition from campaigners who caution the alterations could make it more difficult for disabled people to maintain their mobility.
An online petition urging the UK Government to abandon the reforms has attracted more than 53,000 signatures, with supporters arguing the changes are “unfair to the most vulnerable in society” and could compromise people’s independence. The Department for Work and Pensions (DWP) has confirmed in response to the petition that the planned modifications will take effect on July 1.
Should the petition reach 100,000 signatures, however, it would be reviewed by the Petitions Committee for potential parliamentary debate. Petition organiser Dave Walton has highlighted worries about additional costs associated with vehicle payments and stricter mileage restrictions, cautioning that many disabled people already depend on the scheme for daily travel.
He further noted that increased expenses could leave some unable to afford a vehicle, especially those on limited incomes, while residents in rural locations may find themselves without a viable alternative transport, reports the Daily Record.
It’s crucial to note that modifications to the Motability Scheme will only affect new leases, so current customers won’t be impacted until they come to renew their agreements.
Changes include:
- Some additional payments linked to Motability vehicles will face new taxes
- Insurance-related costs will rise for certain leases
- Standard mileage allowances are being reduced for new customers
The DWP response on the Petitions Parliament website said: “The Motability Scheme is a lifeline for many disabled people and families, supporting their independence by enabling them to lease a car, a wheelchair accessible vehicle, scooter or powered wheelchair in exchange for an eligible disability benefit allowance.
“The Government and Motability have worked in partnership to develop a suite of reforms which strikes the right balance between delivering a key service for disabled people and fairness to the taxpayer, saving over £1 billion by financial year 2030/31. These reforms will not affect eligibility for the Motability Scheme or disability benefits.
“The VAT relief for Advanced Payments – a one-off payment made to lease more expensive vehicles – will be removed and Insurance Premium Tax (IPT) will apply to leases at the standard rate, bringing tax treatment in line with commercial leasing firms.
“These changes will only apply to customers taking out new leases with Motability and will not apply to current leases or to wheelchair accessible vehicles in recognition of the additional costs associated with these vehicles. VAT reliefs on weekly lease costs and vehicle resale will remain in place.”
The changes aim to align the scheme more closely with the broader vehicle leasing market while ensuring its long-term financial viability. Motability has also confirmed it will continue to provide a wide selection of vehicles available without an Advance Payment, guaranteeing that people can access vehicles suited to their requirements, whether that’s a larger vehicle or additional boot space to accommodate wheelchairs, using solely their disability benefit. You can read the DWP response in full here.
What is changing?
The proposed alterations relate to qualifying schemes, the only current example of which is the Motability scheme, which leases vehicles with preferential tax treatment to disabled people receiving eligible welfare benefits.
Reasons for change
Guidance on GOV.UK states: “The policy objective for the measure is to promote fairness and value for money for taxpayers. VAT changes restrict tax reliefs for more expensive vehicles provided under qualifying schemes, while IPT changes bring the tax treatment of qualifying schemes in line with other commercial lease providers.”
Who is likely to be affected
From July 1, 2026 onwards, qualifying schemes which lease vehicles to eligible disabled people will be impacted, the only current example of which is the Motability scheme, as well as businesses which provide insurance to qualifying schemes.
VAT
Eligible benefits paid to claimants by the DWP, the Ministry of Defence, or the Department for Communities (Northern Ireland) can be used to cover the cost of leases. This portion of the payment will be excluded when calculating the supply’s value for VAT purposes, meaning no VAT will be charged on it. However, the new measure will scrap the VAT zero-rate on top-up payments made by those who pay extra to lease more expensive vehicles, in addition to the transfer of eligible welfare benefits.
This top-up payment will be liable for the standard VAT rate of 20 per cent. These alterations will not affect the existing zero rate for vehicles specifically designed or substantially and permanently adapted for wheelchair or stretcher users. Top-up payments for such vehicles will therefore continue to be zero-rated.
Insurance Premium Tax
The guidance states: “This measure restricts the Insurance Premium Tax (IPT) exemption for insurance on vehicles leased through qualifying motor vehicle leasing schemes.
“Once changes take effect, the exemption will apply only to insurance contracts relating to vehicles that are substantially and permanently adapted for wheelchair or stretcher users, or originally designed for their use, where leased through a qualifying scheme.
“All other vehicles provided through such schemes will be subject to IPT at the standard rate of 12 per cent. The liability of insurance relating to all vehicles provided through leases entered into prior to 1 July 2026 will remain exempt.”
