Context
The Motability Scheme addresses the market failure in the provision of suitable transportation for disabled people – from limited access to cars to the cost of adaptive vehicles and access to insurance.
There is a transport accessibility gap today. The difference between journeys undertaken by people with mobility difficulties and those without has been stuck at around 38% for a decade.
Public and commercial transport options for disabled people are still inadequate, reflected in the concentration of Motability customers in suburban or rural areas (81%).
VAT
UK VAT law (VAT Act 1994) includes provisions specifically designed to support disabled people by zero-rating vehicle leases and end-of-lease disposals where they are linked to mobility benefits.
100% of the money saved from the VAT zero-rating goes to disabled people who lease vehicles on the Scheme - it is a targeted support for disabled people that we administer on behalf of government. This scheme is designed to operate with a small margin assuming the VAT relief is in place. Any money made from the Scheme goes back into disabled people’s mobility.
The Scheme’s structure is fully compliant with VAT law, with strong oversight from HMRC and DWP.
Changing VAT on leases
Without any changes to the Scheme's features to reduce costs, introducing VAT for Scheme vehicles would raise costs and exclude people from the freedom and independence the Scheme provides.
A spokesperson for the Motability Scheme said:
"The Motability Scheme exists to enable freedom and independence for disabled people. Every pound of VAT relief is passed directly to disabled customers, many on low incomes, to make mobility affordable. Introducing VAT on leases risks making cars unaffordable for disabled people, leaving only the wealthiest able to access the Scheme - a result that would fundamentally undermine its purpose."
If VAT was applied to the Motability Scheme, there are a range of ways in which it could be paid for. For example, the features of the Scheme could be changed to save money or up front Advance Payments could increase.
Based on the average price of a Scheme lease (for a petrol and diesel vehicle as of April 2025), costs to disabled people could range from £3,000 to £6,500. The enhanced mobility Personal Independence Payments (PIP) allowance is worth just over £4,000 a year.
The median household income of a disabled person using the Scheme is around £18,500 – about half the UK average (£36,700). This would immediately make the Scheme unaffordable for most disabled people, leaving only those on higher incomes able to participate.
Research also shows that a majority of disabled people using the Scheme will not replace the car purchase from an alternative route. A removal of the VAT zero-rating could therefore make it much harder for disabled people to access affordable mobility and any assumption that significant VAT revenue will be generated is misplaced.
The Scheme operates at scale, allowing bulk purchasing and strong manufacturer discounts. Removing the zero-rating would erode this efficiency and undermine the social purpose of enabling independence and affordable mobility. There would also be a knock-on impact to jobs in the automotive sector.
