Hi @chastw It is indeed confusing, and it’s taken me a while, including several phone calls each to DVLA (about the VED exemption), HMRC (about the VAT exemption), Motability (about the VED exemption & early termination) and DWP (about the Certificate of Entitlement)! I’m now clear about it all but, along with some other forum contributors, I misunderstood some of it when I asked on here about it last year.
I had previously thought (as did others) that the private car would need to be registered in my wife’s name (as she’s the benefit recipient). This is not the case. As my wife cannot drive, I can be the nominated driver and the car can be registered in my name. This is acceptable to both HMRC (to buy the car VAT free) and to DVLA (to get the VED exemption). This makes life a bit easier with insurance.
As for the VED exemption, you have two options. You can pay the first full years VED on the new private car and then, once in possession of your Certificate of Exemption, get the car exempted. This will trigger a refund of the remaining VED, but you might end up paying for a month or two of the year (I think they only refund whole months). Or, you tell Motability prior to contract end that you want to pay for the VED on your Motability car. You have to pay Motability a full 12 months VED and then, when your lease ends, they will send you a refund for whole unused months. You need to do that in good time to ensure that you have the Certificate of Exemption in time for the day that your new private car is registered.
Which option you choose depends on which car has the highest VED. Our Motability car is currently £620 VED (£195 + £425 as it’s over £40k), whereas the car I’m buying privately has a first year VED of £5,490 😱 Understandably, I don’t want to risk having to pay a month or two on the new car, or even having to front an extra £5.5k and wait for a refund, so I’m going to start paying the road tax on the Motability car a couple of months before I collect the new car, as it will only be £50 a month and that will hopefully allow time for me to get the certificate before the new car is registered.
Thankfully, as @BigDave said earlier, you only have this hassle the first time you switch from Motability. Thereafter, you will be in possession of the certificate and everything can be seamless.