The Motability Scheme lets people who receive certain disability benefits swap their mobility allowance for an all-inclusive lease on a car, scooter or powered wheelchair — insurance, servicing, breakdown cover and road tax all bundled in. It's used by around 815,000 people across the UK. The changes now taking effect were announced in the Government's Autumn 2025 Budget, which removed some of the tax reliefs the scheme has long enjoyed.
What's changed from 1 July
Two taxes now apply to most new Motability leases. First, the standard 20% rate of VAT applies to the Advance Payment — the optional upfront top-up you pay when you choose a car that costs more than your weekly allowance covers — along with things like excess-mileage charges and early-termination fees. Second, Insurance Premium Tax at the standard 12% rate now applies to the insurance built into the lease.
The key distinction: VAT is not charged on the lease payments you make from your mobility allowance itself. It applies to the extra Advance Payment top-up and a few add-on charges. So a car with, say, a £2,000 Advance Payment doesn't suddenly leap to a wildly higher figure — it gains VAT on that top-up, much of which the scheme is covering centrally.
Crucially, these are changes to new applications placed on or after 1 July 2026. If you already have a lease, nothing changes until it's time to renew and take your next vehicle. And if you ordered before 1 July under a price-frozen agreement, the Advance Payment you were quoted holds even if you collect the car later.
Who stays exempt
The reliefs haven't gone entirely. Wheelchair Accessible Vehicles (WAVs) — and other vehicles substantially and permanently adapted for someone who normally uses a wheelchair or travels on a stretcher — remain zero-rated for VAT and exempt from Insurance Premium Tax. When you order, your dealer will ask you to complete an eligibility declaration to confirm whether you meet the HMRC criteria. For customers whose allowance comes from Social Security Scotland, some of the wider package changes are on hold while discussions continue, though the VAT and IPT rules still apply to new leases.
How much it really costs
This is where a lot of the coverage went astray. The change is a tax on the Advance Payment, not a 20% hike in it, and Motability Operations has said it is absorbing much of the impact centrally. Its own estimate is that the average Advance Payment will rise by around £400 over a three-year lease — real money on a fixed income, but a long way from the four-figure jumps some headlines implied. And around 40 to 50 cars remain available with no Advance Payment at all, which stays the most affordable route onto the scheme.
Two other recent changes worth knowing: Separately, in late 2025 the scheme removed several premium brands — including BMW, Mercedes-Benz, Audi, Lexus and Alfa Romeo, plus coupés and convertibles — to refocus on practical, affordable vehicles (more than 800 cars from around 30 makers remain). New leases also carry a revised mileage allowance of about 10,000 miles a year (30,000 over three years), with excess miles charged at 25p per mile, or 21p where a VAT concession applies.
What this means for you
If you're an existing Motability customer, the headline is reassuring: your current lease is untouched, and the all-inclusive package — insurance for up to three drivers, servicing, maintenance, breakdown cover and road tax — carries on exactly as before. You only meet the new rules when you next renew.
If you're about to apply, it's worth understanding the numbers rather than reacting to a deadline. Choosing a car within your weekly allowance — ideally one of the £NIL Advance Payment options — sidesteps the new VAT almost entirely, and the Motability Foundation still offers means-tested grants for those who need help with a top-up. The scheme's own Changes pages set out exactly what applies to your situation, and it's sensible to check there or speak to Motability directly before committing. This article is general information, not financial or benefits advice.
The practical takeaway: Don't panic-order on the strength of a scary headline, and don't assume your costs have jumped 20% — they almost certainly haven't. If a new car was already your plan, weigh a £NIL Advance Payment option first; if you're happy with your current car, there's nothing to do at all. Either way, check the figures against your own quote before you sign.