More than 800,000 disabled motorists in the UK could see their motoring costs rise by approximately £400 after major rule changes to the Motability Scheme took effect on July 1, 2026. The changes apply VAT to Advance Payments on many new leases and add Insurance Premium Tax to certain models, significantly increasing the upfront cost for drivers.
What Has Changed from July 2026
From July 1, VAT has been applied to Advance Payments on vehicles that require an upfront contribution under the Motability Scheme. Additionally, Insurance Premium Tax will be added to most new leases. These tax changes are expected to increase the average Advance Payment by around £400 over a three-year lease period, according to predictions.
Thomas Drury, money-saving expert at The Investors Centre, explained: “The bigger financial change is the new tax treatment being introduced on future leases. From July 2026, VAT will apply to Advance Payments on vehicles that require an upfront contribution, while Insurance Premium Tax will be added to most new leases. Motability estimates this could increase the average Advance Payment by around £400 over a three-year agreement.”
Who Is Affected by the New Rules
Existing Motability customers with current leases will not see any changes to their existing agreements. However, those approaching renewal are likely to face higher costs than anticipated, which could catch many road users off guard. The Motability Scheme allows disabled people to exchange part or all of their mobility benefit for access to a vehicle, but the new tax treatment means the cost of their next vehicle will likely be higher.
Drury added: “The important thing is that existing customers are protected. If you already have a Motability vehicle, nothing changes until your current lease ends. The impact comes when you return your car and start choosing your next one. That is where some people could be caught out. They may have budgeted based on what they paid previously, without realising the costs have changed.”
VAT Relief and New Mileage Restrictions
The Motability Scheme has warned that some new cars may meet HMRC criteria for VAT relief. If VAT relief is available, the car dealer will require the customer to complete a customer eligibility declaration. Drivers are advised to check with their dealer whether their chosen vehicle qualifies for relief.
In addition to the price increases, Motability customers now face new mileage restrictions of up to 10,000 miles per year. Road users who exceed this limit will be charged 25p per mile as an excess mileage fee.
Why the Changes Were Introduced
Motability bosses have stressed that these changes were necessary to protect customers and ensure the scheme remains sustainable for the long term. In a statement, they said they needed to make “careful changes to protect customers” and keep the scheme “sustainable for the long term.”
The changes come as part of broader government tax adjustments and are expected to impact a significant number of the UK's disabled drivers who rely on the Motability Scheme for personal mobility.
