The Department for Work and Pensions (DWP) has implemented major changes to the Motability Scheme as of Wednesday, July 1, 2026, ending VAT exemptions on advance payments and applying Insurance Premium Tax (IPT) to new leases. The government says these adjustments will save taxpayers approximately £1 billion by 2030.
What has changed from July 1
The Motability Scheme enables disabled individuals to use their mobility allowances to lease accessible vehicles. Previously, advance payments — extra fees for choosing more expensive vehicles — were exempt from Value Added Tax (VAT). From today, these payments are subject to VAT at the standard rate of 20%, generating hundreds of millions in additional tax revenue for the Treasury.
Additionally, leases under the scheme had not been subject to Insurance Premium Tax. That exemption ended on July 1, with all new leases now incurring a 12% IPT levy.
Government rationale and savings
The DWP stated that the scheme was "set up to help disabled people stay mobile and independent, and these changes ensure it continues to do exactly that, while delivering genuine value for taxpayers." The department confirmed that disabled people on enhanced mobility benefits will continue to receive their full weekly award of £77.05 and remain eligible for the scheme. Vehicles requiring no advance payment remain available, allowing access using benefits alone.
The changes were first announced in Chancellor Rachel Reeves' Autumn Budget and form part of a broader package of welfare reforms expected to save nearly £2 billion by the end of the decade.
Removal of luxury vehicles and future impact
Prior to these changes, luxury vehicles such as BMW and Mercedes were removed from the scheme at the last budget. Work and Pensions Secretary Pat McFadden MP said: "Today's changes are driven by the fairness that underpins this Government - fairness for the taxpayer, fairness for disabled people, and fairness for the country. We're saving £1 billion of taxpayer money by removing VAT relief from some new Motability leases, whilst ensuring the scheme still supports disabled people's mobility and independence. We're building a fair welfare system and an economy that works for everyone."
