Glady,
First it’s very important to note that an AP agreed is fixed for the customer at the point of application.
The point I was making was that for Motability they will have VAT to pay on any lease started after 1st July 2026. That means the payments for everything but the core lease will attract VAT for the life of the lease. This means overages on tyres, breakdowns, mileage etc will have VAT applied even if the application happens before the 1st July
So taken from the Terms and Conditions book of leases from 1st April 2026:
Section 2:
The Total Advance Rental Payment is
inclusive of VAT (where applicable) and payable
upfront. This is not a deposit and is not refundable
Payments to be made:
Where VAT is chargeable in accordance with
applicable law, it will be included in, or added to,
the relevant payments under this Agreement.
Whether VAT applies, will depend on the type of
vehicle, your eligibility for VAT relief and the date
the vehicle is supplied, as explained in the PreContract Information.
Gov.UK – VAT and Insurance Premium Tax: change to reliefs for qualifying motor vehicle leasing schemes
This measure will apply the standard rate of VAT to top-up payments on leases of motor vehicles through qualifying schemes for the use of disabled people. Where payments are made through benefits, VAT will continue not to apply.
Insurance Premium Tax will apply at the standard rate of 12% to insurance on new vehicle leases through qualifying schemes.
These measure will take effect from 1 July 2026.
These tax changes will not apply to vehicles designed or substantially and permanently adapted for wheelchair or stretcher users.
Gov.uk – Motabilty Scheme: Reforming Tax Reliefs
Operative date
The measure will have effect from 1 July 2026 and will apply to new leases of vehicles from that date.
It’s important in all of this to remember that the legal status of the lease only starts when the PIN is entered. There is no lease before that point.
Hope that helps
