Motability has written to users confirming changes to mileage allowances and fees from July 2026, with new lease advance payments rising £300-£400 due to VAT and insurance tax changes

Motability, the vehicle leasing scheme for disabled people, has written to all its customers warning of forthcoming ‘changes’ amid concerns over an average £400 price rise resulting from new taxation measures. Disabled individuals who depend on Motability are preparing for steeper costs as the car leasing scheme seeks to offset £300 million in additional taxes introduced following last year’s Budget.

Chancellor Rachel Reeves announced in her November Budget that VAT would be applied to Advance Payments, while Insurance Premium Tax would be levied on Scheme leases. According to Motability, these tax changes mean the average Advance Payment (initial cost) for a vehicle will increase by approximately £400.

Motability has confirmed alterations to mileage allowances, charges for excess mileage, and the introduction of fees for taking vehicles abroad. Customers could also face a rise in advance payments of up to £400 at the start of their new lease.

This follows a period of considerable political scrutiny of the scheme, which allows certain disability benefit recipients to put some or all of their payments towards leasing a new or accessible vehicle.

On Thursday, Andrew Miller, chief executive of Motability Operations, wrote to scheme members confirming that changes would be introduced to manage costs. “Together, these tax changes mean it will cost significantly more to run the scheme,” he said in the letter. “If we did nothing, the average cost of a new lease would increase by around £1,100. It was clear to me that simply passing all these costs on to customers was not an option.

“We had to carefully consider how to reduce the tax impact as much as possible but also, focusing on changes that reflect how most customers already use their vehicles.”

He outlined plans to reduce annual mileage allowances, increase excess mileage charges, modify tyre replacement limits and introduce a fee for taking vehicles overseas, reports the Mirror.

It is understood that customers taking out new leases after July 1 will face an average rise in advance payments of between £300 and £400. However, many new vehicles on the scheme will not require an advance payment.

The scheme, which is exclusively available to those entitled to the higher or enhanced rate of the mobility component of disability benefit, is used by approximately 890,000 people. Nevertheless, the breadth and cost of the programme has drawn considerable criticism.

Last month, Reform UK announced plans to make substantial changes to Motability to “end the abuse” of the scheme. In last year’s autumn Budget, the Chancellor revealed that the scheme would no longer include “luxury cars” such as BMW and Mercedes-Benz models.

Rachel Reeves also confirmed the Government would introduce VAT on advance payments for the scheme, and apply insurance premium tax to leases from July 2026. The DWP has announced that the adjustment will take effect from July 1 – meaning individuals must place their orders before that date or risk paying approximately £400 more.

During a recent parliamentary exchange, MP Neil Duncan-Jordan questioned Chancellor Rachel Reeves: “What assessment she has made of the potential impact of limiting the relief from insurance premiums under paragraph 3 of Schedule 7A to the Finance Act 1994 on disabled people.”

To qualify for a Motability vehicle, an applicant must be receiving the higher/enhanced rate of a mobility allowance, such as PIP, DLA, or AFIP, with no fewer than 12 months remaining on their award.

Dan Tomlinson, Exchequer Secretary to the Treasury, confirmed the key deadline and outlined that the changes were intended to generate savings: “At Budget 2025, the government announced reforms to the Motability scheme, which will save over £1 billion over the next five years.

“The VAT relief for top-up payments made to lease more expensive vehicles will be removed for new leases from July 2026, and Insurance Premium Tax will apply at the standard rate to insurance contracts on the Scheme. The VAT reliefs on weekly lease costs and vehicle resale will remain in place, and the tax changes will not apply to vehicles designed, or substantially and permanently adapted, for wheelchair or stretcher users.

“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.”

Disability Rights UK clarified that the amendments will not affect certain users: “At the Autumn Budget, the Government confirmed that Value Added Tax (VAT) will apply to Advance Payments and Insurance Premium Tax (IPT) will apply to Scheme leases. These changes will take effect from July 2026. The Government have confirmed that VAT will not be added to wheelchair accessible vehicles.

“These tax changes will mean the overall cost of providing the Scheme will become more expensive but will remain sustainable with a choice of affordable vehicles for those who use it. The Motability Scheme will seek to make changes to the leasing package so that these additional costs can be absorbed where possible.”