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Could someone explain how VAT affects Motability, and whether my assumptions below are correct?
I understand that Motability operates as a leasing company and, like other leasing firms, can reclaim VAT on the purchase of vehicles from manufacturers. For example, if they negotiated a price of £48,000 for Vehicle X, they could reclaim £8,000 (20%), meaning the net cost to Motability would be £40,000. Is this correct? Also, is this changing on 1 July? My understanding is that it is correct and that nothing will change on 1 July i.e., Motability will continue to reclaim VAT from HMRC.
Disabled motorists were previously exempt from VAT on the Advance Payment (AP), so they might pay, say, £4,000 as an AP, with the remainder structured as usual. Motability would receive this £4,000 without paying VAT on it. From 1 July, disabled motorists would instead pay £4,800 as an AP, of which Motability would pass £800 to HMRC and retain the same £4,000.
If both of these assumptions are correct, does this mean there is effectively no change from a VAT perspective, other than within Motability’s accounting?
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Apologies for briefness and spelling mistakes.Motability Skoda Enyaq SportLine 85x April 2024 (unhappy customer - Ombudsman pending)
Motability Mazda CX-60 PHEV July 2023 (unhappy customer - early termination on mechanical grounds)
Motability VW Touran Family Pack May 2019 (happy customer)
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There’s a difference between the treatment of corporate VAT and a VAT Exemption.
A lease company buys a car for £60,000 they pay the supplier that £60,000 but the accountants regard the 20%VAT as having been paid to the Treasury. When they lease the car the payments are £1,000 + VAT which means the payment of £1,200 goes to the company.
Motability pays £50,000 for the same car. There’s no VAT to worry about and the cash moved is only that £50,000. When we pay for the car we pay £320 but that is solely payment for the car. There’s no VAT in there.
After July, the AP will be £1,200 which is £1,000 to Motability and £200 to Motability which they then pass on to the Treasury.
The Exemption on the vehicles remain for Motability, so they will stick with paying the £50,000 for the car and will have to pay periodic payments for the VAT on advanced payments within that period.
I hope that helps?
I'm Autistic, if I say something you find offensive, please let me know, I can guarantee it was unintentional.
I'll try to give my honest opinion but am always open to learning.Mark
I don’t think that they pay the VAT and reclaim it. They have a block exemption, so don’t pay it in the first place. That remains after 1st July.
As from July, the APs only will be subject to VAT. We don’t know yet whether the entirety of that 20% will be passed on to us.
Finally, keep in mind that Motability don’t just benefit from VAT exemption. They will get substantial discounts as well. I’d hazzard a guess that the discounts are on average around 20% on ICE cars and probably more like 30% on EVs. This will be in addition to the VAT exemption.
There’s a difference between the treatment of corporate VAT and a VAT Exemption. A lease company buys a car for £60,000 they pay the supplier that £60,000 but the accountants regard the 20%VAT as having been paid to the Treasury. When they lease the car the payments are £1,000 + VAT which means the payment of £1,200 goes to the company.
So unlike me for example, where I can reclaim VAT on invoices for being VAT registered and charge VAT on invoiced work, lease companies etc can’t reclaim VAT on goods (car) invoice?
There’s a difference between the treatment of corporate VAT and a VAT Exemption. A lease company buys a car for £60,000 they pay the supplier that £60,000 but the accountants regard the 20%VAT as having been paid to the Treasury. When they lease the car the payments are £1,000 + VAT which means the payment of £1,200 goes to the company.
So unlike me for example, where I can reclaim VAT on invoices for being VAT registered and charge VAT on invoiced work, lease companies etc can’t reclaim VAT on goods (car) invoice?
As per my last post, I think the fundamental difference is that Motability don’t pay the VAT in the first place, so don’t need to reclaim it.
It’s the same with my new private car. I’m not paying the VAT and then reclaiming it. I’m just not paying it at the point of purchase.
VAT exemption is a very different process to being VAT registered.
I think we may be conflating a few VAT concepts, so I’d like to break this down step by step:
My understanding is that a leasing company (for example, BYD Leasing Ltd) can reclaim input VAT when it purchases vehicles that are then leased out to customers, because those vehicles are used to generate taxable supplies. In other words, the VAT is recoverable where the car is held as a business asset for leasing purposes. Is that correct?
By contrast, if the same company purchases a vehicle for use by, say, its CEO and that vehicle is available for private use, then the input VAT on the purchase would generally be blocked and not recoverable. Again, is that correct?
If the above understanding is right, I’d then like to relate this to Motability and how VAT is treated in that context, particularly in light of the changes coming into effect on 1 July.
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Apologies for briefness and spelling mistakes.Motability Skoda Enyaq SportLine 85x April 2024 (unhappy customer - Ombudsman pending)
Motability Mazda CX-60 PHEV July 2023 (unhappy customer - early termination on mechanical grounds)
Motability VW Touran Family Pack May 2019 (happy customer)@kdwolf I must be misunderstanding your post entirely because, whilst I do not know the answers to your questions, I do know that none of them are at all relevant to Motability, so I am unclear as to the relevance of the questions.
As stated, Motability’s position re VAT is entirely different to that of a commercial leasing company. They do not pay the VAT on the lease in the first place, so have nothing to claim back, so you cannot compare the two. As I say, I must be missing something!
@kdwolf I must be misunderstanding your post entirely because, whilst I do not know the answers to your questions, I do know that none of them are at all relevant to Motability, so I am unclear as to the relevance of the questions. As stated, Motability’s position re VAT is entirely different to that of a commercial leasing company. They do not pay the VAT on the lease in the first place, so have nothing to claim back, so you cannot compare the two. As I say, I must be missing something!
This is where I think you’re wrong, hence trying to establish the point.
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Apologies for briefness and spelling mistakes.Motability Skoda Enyaq SportLine 85x April 2024 (unhappy customer - Ombudsman pending)
Motability Mazda CX-60 PHEV July 2023 (unhappy customer - early termination on mechanical grounds)
Motability VW Touran Family Pack May 2019 (happy customer)You are correct kdwolf.
Motability DOES pay vat on the vehicle it buys from a manufacturer and claims it back or is accounted back from HMRC
Its easy, look it up.
You can see it on every Motability lease. It shows the full price of the vehicle my last car had a price of £49k. That includes vat.
Here’s how it works 👇
🚗 1. Why people think Motability is VAT-free
Historically, vehicles supplied through the Motability scheme qualified for VAT relief (often zero-rated) because they’re provided to disabled people under a special government scheme.
HMRC rules allowed qualifying Motability leases to be zero-rated for VAT
Also, products/services designed for disabled people (including Motability vehicles) can be VAT-free under disability relief rules
👉 So in simple terms:
The core lease funded by your mobility allowance usually didn’t have VAT added.
⚙️ 2. What actually happens in practice
A Motability car isn’t “bought” by you—it’s leased using your disability benefit.
Your mobility allowance goes directly to pay the lease
That portion has historically been treated outside normal VAT charging
👉 That’s why it feels like no VAT is being paid.
💸 3. But not everything is VAT-free
Even before recent changes, VAT could still apply to some things:
Extra payments (like excess mileage or early termination fees) can have VAT
Optional extras or certain costs may also include VAT
⚠️ 4. Big change from July 2026
This is where your understanding needs updating—the rules are tightening.
From 1 July 2026:
The main allowance-funded lease remains effectively VAT-free
BUT:
Advance payments (top-ups for nicer cars) will have 20% VAT
Other extra charges may also include VAT
Only wheelchair-adapted or heavily modified vehicles keep full VAT relief
👉 In short:
Basic scheme = still largely VAT-advantaged
Upgrades / extras = increasingly taxed like normal cars
🧠 The key takeaway
Motability users are not universally VAT-exempt
Instead:
There’s targeted VAT relief on the core lease for disabled users
But extras and higher-spec choices can be taxed, especially from 2026 onwards
👍 Simple way to think about it
✔️ Essential mobility support → tax relief
❌ Optional upgrades / higher-cost choices → normal VAT applies
If you want, I can break down a real example (e.g. £2,000 advance payment car) to show exactly how much VAT you’d pay before vs after 2026.
This is the key point most people misunderstand — and HMRC are actually very explicit about it:
👉 When Motability acquires cars from manufacturers or dealers, those supplies are standard-rated (i.e. VAT is charged).
🧾 What happens at the manufacturer → Motability stage
Car manufacturers or dealers must charge VAT to Motability in the normal way (20%)
Motability is treated as a business buying vehicles, not the disabled end user
HMRC states clearly:
vehicles supplied for the Motability scheme “have to be supplied standard-rated to Motability”
@Woodpecker I appreciate this is how Motability works (claims VAT back against the purchase), but is it the same with other leasing companies? I would assume yes.
Then it is only a question of volume- let’s say 20 people leave Motability and go privately. They approach leasing company and push them down on price, mitigating any counter arguments this leasing company may have like VAT cannot be claimed etc.
Sent from a mobile device.
Apologies for briefness and spelling mistakes.Motability Skoda Enyaq SportLine 85x April 2024 (unhappy customer - Ombudsman pending)
Motability Mazda CX-60 PHEV July 2023 (unhappy customer - early termination on mechanical grounds)
Motability VW Touran Family Pack May 2019 (happy customer)I think we may be conflating a few VAT concepts, so I’d like to break this down step by step: My understanding is that a leasing company (for example, BYD Leasing Ltd) can reclaim input VAT when it purchases vehicles that are then leased out to customers, because those vehicles are used to generate taxable supplies. In other words, the VAT is recoverable where the car is held as a business asset for leasing purposes. Is that correct? By contrast, if the same company purchases a vehicle for use by, say, its CEO and that vehicle is available for private use, then the input VAT on the purchase would generally be blocked and not recoverable. Again, is that correct? If the above understanding is right, I’d then like to relate this to Motability and how VAT is treated in that context, particularly in light of the changes coming into effect on 1 July.
When a company that is VAT registered it can offset the VAT it owes by ALL the VAT it has spent elsewhere. So buying vehicles for lease or for servicing vans makes no difference. The complication could be around how the CEO receives his car but that’s outside of the scope here. Any purchase, whether it’s pens, office equipment or products for resale (or leasing) would have the same VAT treatment. The income would then be split into company’s receivables and payable VAT which is then offset by the VAT paid out.
Corporate VAT accounting really is the easiest part, 2 nominal accounts, one for paid and one for received, the balance then being either a liability (owed to HMRC) or Asset (owed by HMRC. Following something like a factory buying machinery or other high value VATable goods then it could be that the VAT paid exceeds the VAT from sales.
In the context of Motability Operations Ltd, the textbook definitions do not apply. There seem little clarity whether leasing and their purchases are exempt or zero-rated and that’s a very important distinction. If they’re Exempt, the internal treatment of VAT will be very different from most companies. They pay full price without the ability to reclaim VAT on any purchase and wouldn’t be paying the VAT element on cars purchased. If they’re Exempt cars are zero rated and leasing is zero rated, then Motability would be registered for VAT in the normal way. They would pay and reclaim all VAT on their purchases including non lease items with no income to offset, effectively they’d be receiving a large lump sum from HMRC. The invoices support the zero-rating theory.
I'm Autistic, if I say something you find offensive, please let me know, I can guarantee it was unintentional.
I'll try to give my honest opinion but am always open to learning.Mark
I can see where you are coming from, but I think it is an over simplification and wrong to just say that,
“Essential Mobility Support” = Tax Relief
“Optional Upgrades / Higher cost choices = Normal VAT applies
It is easier to think, your normal PIP allowance only totals a certain amount, if the cost of the car is more because you need a larger more suitable car to meet your specific Disability needs due to your unchosen disability, you will then need to pay VAT on the additional cost of the car (nothing to do with make or specifications, only cost), i.e. the AP. Unless you settle for, in lots of circumstances, a less suitable Non VAT WAV, which has an AP, but with no vat added to the AP.
Motability, the Government and HMRC needs to wake up in this day and age and recognize the reality that not all wheelchair ( or certain other mobility) Disabled customer’s essential needs can be best met with a WAV and anyone else who needs a car with an AP is just spoiling themselves in unnecessary luxury’s over and above their Essential needs.
Also remembering that we are limited in suitability car choice, due to Motability limiting which cars they choose to qualify for going on their list, even though we are the people paying for the car’s that we need to assist in our disability and as we are the expert’s on our own disability, we therefore deserve the right of choice.
Politicians’ and clerical Manager’s are not experts on Disability needs. The VAT relief rules need to be re-looked at.
I paid £4,000 AP for a Skoda Superb estate 2.0 SLi Auto estate, which come July would be £4,800 with vat, added to the same car to meet the same needs of the same disabled person on a Motability car, that’s AP could be changed by thousands by Motability each Quarter, Where is the logic or fairness in that. VAT aside, the fluctuation which will affect vat charges is certainly not to do with insurance costs, running costs or residual values, which should be met by the annual increase in PIP each year, but fluctuation’s could now increase your VAT on AP charges which are made up numbers by Motability and Manufacturers’.
✔️ Essential mobility support → tax relief
❌ Optional upgrades / higher-cost choices → normal VAT applies
Right or wrong that is what Chatgpt came out with.
It makes sense, wav users get tax relief.
“Luxury car” add ons as the press and politicians put it, normal vat applies.
Motability, the Government and HMRC needs to wake up in this day and age and recognize the reality that not all wheelchair ( or certain other mobility) Disabled customer’s essential needs can be best met with a WAV and anyone else who needs a car with an AP is just spoiling themselves in unnecessary luxury’s over and above their Essential needs.
Im not sure what you’re getting at with this.
The problem I have is that most of the time I come across this type of statement it’s aimed at framing the situation like we are choosing luxury cars just because they’re available, whether that’s the BMWs or just top of the range Fords or KIAs. It’s painting us as not working but still having a car beyond anything we ‘deserve’ all from the government purse.
I’m pretty sure I’m not alone in the situation where I need a car of a certain level of comfort just because of the physical conditions I live with. I’ve sat in cars which are regarded as luxury or premium and have left in serious pain just because I can’t adjust the seat sufficiently to find a comfortable position without lumbar support touching the wrong part of my spine. Whilst I’m not yet a wheelchair user, even part time, I don’t see why my needs are made to require justification.
I'm Autistic, if I say something you find offensive, please let me know, I can guarantee it was unintentional.
I'll try to give my honest opinion but am always open to learning.Mark
Kezo, Reading that, to me, suggests that extras apart, vat should not be added on to the actual AP of the car that Motability are leasing to the Disabled person, as the AP is part of the leasing price from Motability a disabled leasing company leasing to a PIP qualified person.
@callmejohn
Essential mobility support → tax relief Optional upgrades / higher-cost choices → normal VAT applies Right or wrong that is what Chatgpt came out with. It makes sense, wav users get tax relief. “Luxury car” add ons as the press and politicians put it, normal vat applies.I am not for one minute suggesting WAV users should not get vat free, I am just saying that they are not the only case that should qualify, as someone who was passed for a WAV but found an alternative that suited me better.
Motability, the Government and HMRC needs to wake up in this day and age and recognize the reality that not all wheelchair ( or certain other mobility) Disabled customer’s essential needs can be best met with a WAV and anyone else who needs a car with an AP is just spoiling themselves in unnecessary luxury’s over and above their Essential needs.
Im not sure what you’re getting at with this. The problem I have is that most of the time I come across this type of statement it’s aimed at framing the situation like we are choosing luxury cars just because they’re available, whether that’s the BMWs or just top of the range Fords or KIAs. It’s painting us as not working but still having a car beyond anything we ‘deserve’ all from the government purse. I’m pretty sure I’m not alone in the situation where I need a car of a certain level of comfort just because of the physical conditions I live with. I’ve sat in cars which are regarded as luxury or premium and have left in serious pain just because I can’t adjust the seat sufficiently to find a comfortable position without lumbar support touching the wrong part of my spine. Whilst I’m not yet a wheelchair user, even part time, I don’t see why my needs are made to require justification.
Sorry you seemed to have picked me up wrong and thought I was saying the opposite. We are on the same side and I am saying that the three bodies must realize that our needs can only be met by offering the largest range of different cars to meet each of our different and very individual needs.
I can see where you are coming from, but I think it is an over simplification and wrong to just say that, “Essential Mobility Support” = Tax Relief “Optional Upgrades / Higher cost choices = Normal VAT applies It is easier to think, your normal PIP allowance only totals a certain amount, if the cost of the car is more because you need a larger more suitable car to meet your specific Disability needs due to your unchosen disability, you will then need to pay VAT on the additional cost of the car (nothing to do with make or specifications, only cost), i.e. the AP. Unless you settle for, in lots of circumstances, a less suitable Non VAT WAV, which has an AP, but with no vat added to the AP. Motability, the Government and HMRC needs to wake up in this day and age and recognize the reality that not all wheelchair ( or certain other mobility) Disabled customer’s essential needs can be best met with a WAV and anyone else who needs a car with an AP is just spoiling themselves in unnecessary luxury’s over and above their Essential needs. Also remembering that we are limited in suitability car choice, due to Motability limiting which cars they choose to qualify for going on their list, even though we are the people paying for the car’s that we need to assist in our disability and as we are the expert’s on our own disability, we therefore deserve the right of choice. Politicians’ and clerical Manager’s are not experts on Disability needs. The VAT relief rules need to be re-looked at. I paid £4,000 AP for a Skoda Superb estate 2.0 SLi Auto estate, which come July would be £4,800 with vat, added to the same car to meet the same needs of the same disabled person on a Motability car, that’s AP could be changed by thousands by Motability each Quarter, Where is the logic or fairness in that. VAT aside, the fluctuation which will affect vat charges is certainly not to do with insurance costs, running costs or residual values, which should be met by the annual increase in PIP each year, but fluctuation’s could now increase your VAT on AP charges which are made up numbers by Motability and Manufacturers’.
Hi it Breach’s the equality act how can you have WAV cars no vat and other disability cars on Motability vat to pay on AP sounds like Discrimination as well as many may no even if you need a WAV how many disabled can afford the large AP as it does not work on disability it works on affordability. Even if you are lucky enough to get a grant for a WAV you have to be working or doing 16 hours a week voluntary work which Motability introduced a few moons ago with no consultation so in other words you have to justify your disability with use of said vehicle.
The reason the Vat you need to be in a wheelchair rule was because unscrupulous people were abusing the Vat discount to buy high value cars and obtaining them using the 20% discount one person bought 5 cars at over £100,000 and so instead of punishing the guy they changed the rules and so we get punished instead a bit like the just stop oil or the idiocy of pouring paint / soup or orange pigment as a protest no realising that they will just introduce more security that we the public have to adhere to and our freedoms get taken away by these well meaning haven’t quite thought through the repercussions sometimes I think it is government sponsored terror to justify thier plans like they have taken the Russian playbook and introduced it here so next time you see one of these idiots please explain to them that it is only the public that they will effect in the end and nothing they do will advance thier cause
It takes some idiot like Trump with the help of the military to stop oil so I don’t think soup and paint is going to get you very far
https://www.gov.uk/hmrc-internal-manuals/vat-relief-for-disabled-people/vrdp28000
As the rule14 (provided by kezo, states, “A car provided may be a standard production model, in practice only vehicles provided by Motability meet all the conditions”. Which is entirely different from the Guidance on Vat, exemption for buying a car.
Therefore the rule about needing to pay vat due to the car having an AP is totally irrelevant and wrong , as the AP only exists on the standard production car due to the fact that the PIP is not paid at a high enough rate as to cover the full cost of leasing the car and is not an extra and has nothing at all to do with the qualifying rules for vat relief for the disabled, leasing the car from Motability.
P.S. I was under pressure and rushing yesterday and I am sorry for upsetting anyone by not making my statement’s and meaning’s, perfectly clear.
So to summarise the above: from Motability perspective there’s no change to VAT approach from July- it will continue claiming the VAT back for purchasing the cars. The onus to fulfill HMRCs coffins shifted to the disabled motorists.
No personal opinion on the matter- only summarising the facts.
Sent from a mobile device.
Apologies for briefness and spelling mistakes.Motability Skoda Enyaq SportLine 85x April 2024 (unhappy customer - Ombudsman pending)
Motability Mazda CX-60 PHEV July 2023 (unhappy customer - early termination on mechanical grounds)
Motability VW Touran Family Pack May 2019 (happy customer)
Essential mobility support → tax relief 
Optional upgrades / higher-cost choices → normal VAT applies Right or wrong that is what Chatgpt came out with. It makes sense, wav users get tax relief. “Luxury car” add ons as the press and politicians put it, normal vat applies.
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