Context
The Motability Scheme exists to address the market failure in the provision of suitable transportation for disabled people – from limited access to cars, to the cost of adapted vehicles and access to insurance.
There is still a transport accessibility gap today. For more than a decade, disabled people have taken around 38% fewer journeys than non-disabled people. Public and commercial transport options remain inadequate. This is reflected in the fact that 81% of Motability Scheme customers live in suburban or rural areas, where alternatives are most limited.
Changes to VAT and Insurance Premium Tax
On 26 November 2025, the Government announced that tax rules for new leases on the Motability Scheme will change from July 2026.
The measures include:
- The Motability Scheme will now be subject to Value Added Tax (VAT) at 20% on Advance Payments; and
- Removal of the current exemption from Insurance Premium Tax (IPT) for the Motability Scheme.
Motability Operations recognises that any rise in the cost of a lease could have a significant impact on disabled people’s independence and daily life. To minimise price increases for customers taking out a new lease, the Scheme is considering a range of other changes across the leasing package including mileage, overseas breakdown cover, increased use of telematics for insurance purposes and other services. These proposed changes will only be confirmed once a full assessment of their impact on disabled people has been completed.
As a result of the tax changes, the organisation anticipates the average Advance Payment (upfront cost) of a vehicle, will increase by around £400. The Scheme will continue to provide a range of around 40 to 50 vehicles available to lease with no upfront payment and these vehicles will be exempt from the new VAT rules.
Advance Payments on Wheelchair Accessible Vehicles on the Motability Scheme will remain zero-rated for VAT and exempt from Insurance Premium Tax (IPT).
Without adapting the features of the Scheme introducing VAT and IPT would risk making the Scheme unaffordable for many disabled people. This could reduce mobility, limit access to employment, education and community life, and undermine the Scheme’s purpose of enabling freedom and independence.
