Motability, the vehicle leasing company dedicated to disabled individuals, has issued a formal letter to all users of its scheme outlining substantial changes that will take effect from July 2026. The communication details how new government tax measures will result in an average increase of approximately £400 in advance payments for many users, alongside modifications to mileage allowances and other charges.
Tax Changes Driving Cost Increases
In her November Budget, Chancellor Rachel Reeves announced that Value Added Tax (VAT) will be applied to Advance Payments, and Insurance Premium Tax (IPT) will be levied on Scheme leases. According to Motability, these tax alterations are expected to add around £300 million in new costs to the scheme, directly impacting users' financial commitments.
Andrew Miller, chief executive of Motability Operations, explained in his letter to scheme members that without intervention, the average cost of a new lease would surge by about £1,100. "It was clear to me that simply passing all these costs on to customers was not an option," Miller stated, emphasising the need for careful management to mitigate the tax impact while reflecting typical vehicle usage patterns.
Specific Adjustments to the Scheme
The changes include reductions in annual mileage allowances, increased charges for excess mileage, adjustments to tyre replacement limits, and the introduction of fees for taking vehicles overseas. Customers initiating new leases after 1 July 2026 will face an average rise in advance payments ranging from £300 to £400, though many new vehicles on the scheme will still not require any advance payment.
It is important to note that these tax changes will not apply to vehicles specifically designed or permanently adapted for wheelchair or stretcher users, as confirmed by both the government and Disability Rights UK. The organisation clarified that VAT will not be added to wheelchair accessible vehicles, ensuring some protection for those with particular mobility needs.
Political and Financial Context
The Motability scheme, which serves approximately 890,000 people eligible for the higher or enhanced rate of disability mobility benefits, has faced increasing political scrutiny. Last year's autumn Budget also revealed that the scheme would no longer include luxury car models such as BMW and Mercedes-Benz, part of broader reforms aimed at saving over £1 billion over the next five years.
Dan Tomlinson, Exchequer Secretary to the Treasury, confirmed that the modifications are designed to generate significant savings while maintaining the scheme's sustainability. "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," he explained.
Eligibility and Future Implications
To qualify for a Motability vehicle, individuals must be receiving the higher or enhanced rate of a mobility allowance, such as PIP, DLA, or AFIP, with at least 12 months remaining on their award. The Department for Work and Pensions has announced that the tax adjustments will take effect from 1st July 2026, meaning users must place orders before this date to avoid the additional costs.
Despite the changes, Disability Rights UK has reassured users that the scheme will remain sustainable, offering a choice of affordable vehicles. The organisation noted that Motability will seek to absorb these additional costs where possible through adjustments to the leasing package, aiming to minimise the financial burden on disabled individuals who rely on the service for their mobility and independence.
