Big changes coming to the Motability scheme – What you need to know
Key Points
- Motability lease reforms come into force Wednesday (1 July)
- VAT now applies to advance payments on new leases
- Insurance Premium Tax added to new Motability leases
- Changes set to save taxpayers £1 billion by 2030
- Enhanced mobility benefit protected at £77.05 per week
New VAT and Insurance Premium Tax charges on some Motability leases come into force on Wednesday (1 July), in reforms the government said will save taxpayers £1 billion by 2030.
The changes, confirmed by the Department for Work and Pensions, apply VAT to advance payments, the optional one-off top-up paid by customers who choose a more expensive vehicle, and add Insurance Premium Tax to new leases.
Both were announced at the Autumn Budget and form part of a wider welfare package set to save nearly £2 billion by the end of the decade.
What is changing?
VAT will now apply to advance payments on new leases, and Insurance Premium Tax will apply to new leases taken out from Wednesday (1 July).
The DWP said the two measures together will remove VAT relief from some new Motability leases and deliver the £1 billion saving by 2030.
The reforms follow the removal of luxury vehicles, including BMW and Mercedes, from the scheme in the weeks after the Budget.
The DWP said the move returned Motability to its original purpose of providing disabled people with a practical vehicle rather than subsidising premium extras.
What is not changing?
Disabled people on enhanced mobility benefits will continue to receive their full award of £77.05 per week and remain eligible for the scheme.
Vehicles that require no advance payment remain available, meaning a car can still be accessed using the benefit alone.
The core package is unchanged: eligible disabled people continue to access a vehicle, scooter or powered wheelchair, with insurance for up to three drivers, UK breakdown cover and maintenance.
There is no change to existing leases and no change to eligibility for Personal Independence Payment or the scheme itself. The changes also do not apply to Wheelchair Accessible Vehicles.
The Motability Foundation continues to offer means-tested grants for people who would otherwise struggle to afford an advance payment, adaptations or a wheelchair-accessible vehicle.
“Today’s changes are driven by the fairness that underpins this Government – fairness for the taxpayer, fairness for disabled people, and fairness for the country,” said Work and Pensions Secretary Pat McFadden.
“We’re saving £1 billion of taxpayer money by removing VAT relief from some new Motability leases, whilst ensuring the scheme still supports disabled people’s mobility and independence.”
The Secretary of State framed the reforms as part of a broader overhaul of the welfare system, which the DWP said includes a Right to Try Work Guarantee, £3.5 billion in tailored employment support for sick or disabled people, and more face-to-face assessments for health benefits.
The department said its drive against fraud and error in the benefit system will save £14.6 billion over this parliament.
