The changes introduce VAT on advance payments for certain vehicles and Insurance Premium Tax on most new leases. Ministers say the reforms are intended to preserve access to mobility support for disabled people while reducing public spending.
The Motability Scheme enables eligible disabled people to lease cars, scooters and powered wheelchairs using their enhanced mobility benefits. According to the Department for Work and Pensions (DWP), recipients will continue to receive their full enhanced mobility award of £77.05 per week and remain eligible for the scheme under the new rules.
The reforms, which took effect on 1 July 2026, follow measures introduced after last year’s Autumn Budget and come after changes to the range of vehicles available through the scheme.
New Tax Rules Alter Costs for Some Motability Customers
From 1 July, vehicles leased through the Motability Scheme that require an advance payment are now subject to 20 per cent VAT on that optional top-up amount. According to the DWP, Insurance Premium Tax at the standard rate of 12 per cent also applies to most new Motability leases from the same date.
The department said the changes do not affect existing leases or eligibility for the scheme. It also confirmed that the reforms do not apply to Wheelchair Accessible Vehicles.
Work and Pensions Secretary Pat McFadden said the measures are intended to balance support for disabled people with value for taxpayers. According to the DWP, he said the reforms are driven by “fairness for the taxpayer, fairness for disabled people, and fairness for the country“, while maintaining mobility and independence for eligible users.
The government also stated that vehicles requiring no advance payment remain available, allowing eligible customers to access a car using their benefit alone. The core Motability package, including insurance for up to three drivers, breakdown cover and vehicle maintenance, also remains unchanged.
Vehicle Range Narrowed as Scheme Returns to Practical Focus
The tax reforms follow earlier changes to the vehicles available through the scheme. According to the DWP, luxury models including BMW and Mercedes were removed after the Autumn Budget as part of an effort to return Motability to its original purpose of providing practical transport rather than subsidising higher-cost options.
Motability also removed vehicles from several premium brands, including Alfa Romeo, Audi, Lexus and Mercedes-Benz, while coupe and convertible models were withdrawn from the scheme. The organisation said these vehicles generally represented higher-cost options that no longer aligned with its focus.
Andrew Miller, chief executive of Motability Operations, said tax changes announced in the Autumn Budget had “significantly increased” the cost of operating the scheme. He said the organisation had made “difficult decisions” in response while aiming to ensure the scheme continues to provide disabled people with mobility and independence.
According to the DWP, the Motability Foundation will continue to offer means-tested grants to help eligible people who would otherwise struggle to afford an advance payment, vehicle adaptations or a wheelchair-accessible vehicle. The department said the wider package of welfare reforms, including the Motability changes, is expected to save nearly £2 billion by the end of the decade, with £1 billion attributed to the Motability measures alone.
