New changes to the Motability Scheme come into effect today, Wednesday, July 1, adding VAT to advance payments and Insurance Premium Tax to all new leases. The reforms, announced in the Autumn Budget, are expected to save nearly £2 billion by the end of the decade, according to the government.
What the Changes Mean for Drivers
Advance payments, optional one-off fees for customers choosing more expensive vehicles, will now include VAT. Insurance Premium Tax will apply to all new Motability leases. However, people receiving the enhanced rate of the mobility benefit will continue to receive their full weekly payment of £77.05 and remain eligible for the scheme. Cars with no advance payment will still be available, allowing many to lease a vehicle using only their benefit.
The changes do not affect Wheelchair Accessible Vehicles. The core Motability package—including insurance for up to three drivers, UK breakdown cover, and maintenance—remains unchanged for existing leases.
Government's Rationale
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, while ensuring the scheme still supports disabled people’s mobility and independence.”
The reforms follow earlier action to remove luxury vehicles, such as BMW and Mercedes, from the scheme, aiming to focus Motability on practical vehicles rather than subsidising premium extras.
Wider Welfare Reforms
The changes are part of a broader government drive to “fix the broken welfare system,” including introducing a Right to Try Work Guarantee, investing £3.5 billion in tailored employment support for sick or disabled people, increasing face-to-face assessments for health benefits, tackling fraud and error to save £14.6 billion this parliament, and rebalancing Universal Credit to remove disincentives to work.
The Motability Foundation continues to offer means-tested grants for those struggling to afford advance payments, adaptations, or wheelchair-accessible vehicles.
