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In order:
”Premium/Luxury” brands removed.
VAT to be applied only to the AP.
12% insurance tax to be applied to the car insurance offered.
I believe that’s it.
Motability have issued a statement basically saying they’ll look into how it affects the scheme.
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
Motability Tax Changes In The 2025 Budget
What Has the Government Announced For The Motability Scheme?
By: James Reeve
Posted on 26th Nov 2025 | Updated 26th Nov 2025The Government has announced plans to change the way the Motability Scheme is taxed. Although the reforms are more limited than initially feared, they are still expected to increase costs for many disabled drivers who rely on the Scheme for affordable, worry-free motoring.
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Table of Contents1.VAT To Apply To Motability Advance Payments
2.Insurance Premium Tax To Be Applied For The First Time
3.Premium Brands Removed From The Scheme
4.Impact On Motability Advance Payments Still Unclear
5.Motability’s Response
6.MotaClarity Will Keep You Updated
VAT To Apply To Motability Advance Payments
VAT relief on upfront Advance Payments will be removed for all new Motability leases from July 2026. From then on, these payments will be subject to the standard 20% VAT rate, a change that is likely to increase upfront costs for many customers.An Advance Payment is the extra amount some customers pay at the beginning of a Motability lease if the vehicle they want costs more than the qualifying weekly Mobility Allowance (currently £77.05) covers. It’s a one-off payment that lets customers choose bigger, better-equipped and more expensive vehicles.
Importantly, Wheelchair Accessible Vehicles (WAVs) will remain exempt, meaning the VAT change will not apply to these vehicles.
There will be two additional changes to how the Motability Scheme operates: the annual mileage cap will be reduced from the current 20,000 miles, and breakdown cover for overseas travel will no longer be included as part of the standard lease package.
Insurance Premium Tax To Be Applied For The First Time
The Chancellor, Rachel Reeves, will also levy Insurance Premium Tax (IPT) on the all-inclusive insurance cover provided by the Motability Scheme. This will be the first time IPT has ever been applied to the Scheme.Because each Motability lease currently bundles insurance, maintenance, MOTs, breakdown cover and tyre replacement into a single fee, adding IPT is expected to bump up overall running costs. Unless absorbed by the Scheme, these added costs are highly likely to be passed on to customers.
According to the Government’s Budget 2025 forecasts, the combined tax changes are projected to save the Treasury over £1 billion over the next five years.
Read the 2025 Budget Report
Read Motability Scheme: Reforming Tax Reliefs
Motability Scheme Changes In The Budget 2025
Premium Brands Removed From The Scheme
In addition to the new tax changes, Motability announced yesterday that several premium car brands will no longer be available to its customers. The brands removed from the Scheme are:Alfa Romeo
Audi
BMW
Lexus
Mercedes-Benz
Motability says the change is intended to shift the fleet toward vehicles that ‘meet disabled people’s needs and represent value and purpose,’ focusing on reliability, lower running costs and accessibility rather than luxury.Motability Scheme Removes Premium Brands And Sets Major New Target For UK-Built Cars
Impact On Motability Advance Payments Still Unclear
Even these limited tax changes are likely to push up costs for disabled motorists. Both the VAT changes and IPT on insurance will increase Motability’s operating costs, and the Scheme typically reflects these changes through its quarterly pricing.What remains unclear is how much Advance Payments will rise, and which types of vehicles could see the biggest increases. Customers who rely on larger or more expensive vehicles may be more exposed to price changes than those choosing smaller models.
Before the Budget, several disability charities warned that adding VAT and IPT would increase the cost of even the cheapest cars, potentially making the Scheme unaffordable for people on low or fixed incomes.
It also remains unclear how, or whether, the Government’s new tax proposals for electric vehicle (EV) drivers will impact people using the Motability Scheme.
Addressing criticism that Motability has sometimes been used to lease premium vehicles, Reeves told MPs during her budget statement: “The Motability Scheme was set up to protect the most vulnerable, not to subsidise the lease on a Mercedes-Benz, so I am making reforms that will reduce generous taxpayer subsidies.”
Motability’s Response
In a statement issued after the Budget, Andrew Miller, CEO of Motability Operations, said the organisation will adapt the Scheme to manage the impact of the Government’s tax changes and ensure it remains sustainable in the long term.He added that over the next six months, Motability will be ‘looking at what we include, how we manage costs and how we make sure the Scheme stays sustainable for the long term.’Keeping the Motability Scheme strong for the future https://share.google/0BrRt0xyEq7WAJ0mh
@martinod This is covered on other threads. Here’s a full summary that I posted on that thread;
I’ve just done a word search on the 150 page Budget Red Book for every mention of Motability, and the results are that the changes (which will ‘save’ the exchequer £1bn over 5 years) are;
1) Removal of luxury brands (Note – as we know, they are premium brands, not luxury, and this won’t save the exchequer any money whatsoever).
2) VAT relief to be excluded from Advance Payments from July, unless the car has substantial and permanent modifications for wheelchair or stretcher users (the same rule that applies to VAT exemption on private new car purchases)
3) Annual mileage limit to be reduced to match personal leases
4) Overseas breakdown cover to be removed.
5) The cost of Insurance Premium Tax at 12% to be added to leases
So, in summary, points 2 and 5 will increase APs, point 1 reduces choice and points 3 and 4 remove some of the things that help to make Motability very attractive.
Then, of course, there’s the new tax of 3p per mile for EVs and 1.5p per mile for PHEVs, although that affects everyone, not just Motability customers.
I can’t get terribly exercised over all of this, as yesterday’s removal of premium brands was the final decider that our current Motability car will be our last. It’s not a scheme for us any more.
T👀 many threads on the same topic!
https://forum.whichmobilitycar.co.uk/forums/topic/reeves-attack-on-motability/
So instead of doing their job properly by removing PIP from those who shouldn’t have it, they invent a way to penalise those in genuine receipt.
They clearly have no clue about cars suitable for a disabled persons needs.
I need an SUV as I’m tall with spinal arthritis and can’t bend to get in a car. So I’m automatically stuck with expensive cars so with VAT my ap will rise.
My mobility car is my only release from being stuck indoors so the mileage cap will restrict my life unless I pay extra mileage costs.
This is all discriminating against me.
Creating rules to penalise us instead of doing the job they should be doing is a discriminatory cop out.
Stupid thing they don’t realise if I get a fiesta or a BMW the benefit payment transferred to motability is the same . Any cars with cheaper payments I still get the rest of the benefit. So they won’t save anything there.
So the changes just penalise those who use their own money to pay the AP.
Those getting a grant will just need a bigger grant so no savings there.
On top of that the EV I thought it was my duty to buy is now going to be taxed 3 ways. Road tax, 5% vat on my electricity and now mileage tax two of which I need to find the money for.
They’ve picked easy targets because they know the stupid members of the public will support them as they think we all get free cars.
Luxury cars convertibles and coupes removed already. Skoda Enyaq coupe still there?
Cars like the Skoda Enyaq are still practical 4/5 door family cars that are just called coupes due to their raked rear end styling. I doubt that cars like that will be removed. I suspect that they will remove what most people would understand a coupe to be (small sports car like 2 door cars) as Jo public would assume that cars like that are impractical for people with disabilities- and the changes (such as removal of premium brands) are purely about perception 🤬
They’ve picked easy targets because they know the stupid members of the public will support them as they think we all get free cars.
We may no longer be getting free Alfas, Audis, Beemers, Mercs, coupes or convertibles, but we do still get free Range Rovers and Land Cruisers. Don’t you know?
Current lease: 2025 Omoda 5 Estate 1.6 TGDI [147] Noble 5dr 7DCT
Last lease: 2022 MINI Hatch 2.0 Cooper S Classic Premium 5DR Auto
First lease: 2018 SEAT Leon Sport Tourer 1.8 TSI FR Technology DSGNot sure if you have twigged – Alfa Romeo mainstream manufacturer Junior Ibrida (Toyota CHR type) gone, Premium brand Volvo remain searchable with XC40, V60 but models greyed out. Polestar, considered premium (Chinese) manufacturer searchable, Audi, BMW, Merc removed from the the search.
Whats “percieved” from the outside world as luxury, has been removed, yet since it’s introduction in 2008/9, the X1 has had the reputation as a poor mans BMW and lower end Mercs, as powered by Renault – funny how expectatations change to suit agenda’s. Oh, and I’m still struggling to understand how Alfa got caught up in all this?
What does the introduction of the 12% Insurance Premium Tax mean for us? Will this lead to an increase in our advance payments?
What does the introduction of the 12% Insurance Premium Tax mean for us? Will this lead to an increase in our advance payments?
Motability have said that they will determine how these changes will impact on customers over the next 6 months, but I’d say that the answer to your question is almost certainly ‘yes’.
What does the introduction of the 12% Insurance Premium Tax mean for us? Will this lead to an increase in our advance payments?
12% + 20% VAT ontop!
Unless Motability can or is willing to swallow some of the costs on zero AP (sacrified benefit amount) VAT @20% will be chargeable on any AP and potentially chargeable on 12% IPT, which is generally seen exempt from VAT, as an already VAT like workaround.
It will certainly be interesting what they come up with!
Luxury cars convertibles and coupes removed already. Skoda Enyaq coupe still there?
Cars like the Skoda Enyaq are still practical 4/5 door family cars that are just called coupes due to their raked rear end styling. I doubt that cars like that will be removed.🤬
Enyaq Coupe now gone.
Luxury cars convertibles and coupes removed already. Skoda Enyaq coupe still there?
Cars like the Skoda Enyaq are still practical 4/5 door family cars that are just called coupes due to their raked rear end styling. I doubt that cars like that will be removed. I suspect that they will remove what most people would understand a coupe to be (small sports car like 2 door cars) as Jo public would assume that cars like that are impractical for people with disabilities- and the changes (such as removal of premium brands) are purely about perception
Enyaq Coupe now gone
Thats beyond to the extremes – I take it the Enyak “Estate” remains, even though neither of them could be classsed as “luxury” or premiun.
At this rate, I will vacating quicker than first thought…
Quick question if anyone can help as we know
VAT relief for top-up payments made to lease more expensive vehicles will be removed for new leases from July 2026, and Insurance Premium Tax will apply at the standard rate to insurance contracts on the scheme.
Q is if a standard car lease end date is Sep 2026 and they can sign up for a new lease 3 months before lease ends
Say June 1st 2026 will that avoid the new AP/Insurance changes
Thanks in advance
Quick question if anyone can help as we know VAT relief for top-up payments made to lease more expensive vehicles will be removed for new leases from July 2026, and Insurance Premium Tax will apply at the standard rate to insurance contracts on the scheme. Q is if a standard car lease end date is Sep 2026 and they can sign up for a new lease 3 months before lease ends Say June 1st 2026 will that avoid the new AP/Insurance changes Thanks in advance
I suppose technically the lease commences when you enter your PIN (i.e. upon collection of the vehicle).
Until that point you only have ‘an order’ and a ‘locked in’ Advance Payment Price, locked in at the time of order, but you are free to walk away at this stage.
I fear that the date of 1st July was chosen as it is the start of a quarter 3. Current customers with a lease end date on or after 1st July will have to order on or after 1st of April (start of Q2), which is when I suspect the VAT/IPT will be incorporated into the Advance Payments, as the vehicles will be delivered (and thus the new contract starts) on or after 1st July (ie on or after current contract end).
An interesting point would be for a brand new Motability customer ordering after 1st April, but taking a ‘short notice’ or stock car with delivery prior to 1st July. Likewise with quick Early Terminations with delivery of the new car before 1st July if a stock vehicle. Motability may have to publish separate price guidance for these types of scenarios.
No doubt Motability will issue guidance in due course.
Thank you for the reply
I have just spoken with motorbility and been informed that although lease end date is Sep 2026 by ordering ( suits me) another car 3 months earlier in June 2026
I will then be able to escape the new charges
edit
Spoke to them again as on reflection their first reply was a little woolley and could be open to misinterpretation
second conversation contained the word should so tbh they are as clueless as me at the moment as understandably everything is yet to be ironed out
I will update if/when things are clearer or maybe others could also do the same
Much appreciated all
Just a thought, will we be able to use our no claim bonus to reduce the 12% insurance tax after all if we were private or business user we’d get a rebate that in turn would reduce the tax even though it would still be 12% of a lesser amount if you get what I mean.
I just did a quick run down on my list of possibilities adding VAT to the APs at the start of the quarter and of those still on the scheme the cheapest suitable car could the the Enyaq 85 Edition and that’s going to be over £5,000. I barely managed to justify the money spent on the current car as it was to be a 4/5 year lease after extension (look how well that went) but every 3 years I’d need to find 5 grand!? I think that’s unaffordable.
So, not only does the new government decisions make life even less affordable, but without a selection of new and cheaper cars appearing, I’m going to struggle to continue on the scheme. Due to size I’d struggle with the numerous Kona sized options, anything smaller is definitely out. Of the bigger cars, there’s the Enyaq, Ioniq 5 and the Mustang. With a medical needs lists of heated and comfortable seats, powered tailgate, reversing cameras (preferable 360) and a car big enough that I can fit I didn’t think I was asking too much. The car has to be electric, one pedal or predominantly one pedal driving makes life so much more comfortable, especially after shopping or being on my feet for any length of time. Heads Up Display and wireless CarPlay would be nice to have but aren’t exactly pushing high on the priorities purely because the extra cost of models with all this makes it silly. I’ve got until November next year to find something and new lease starts Feb 27
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 wonder what the mileage allowance will be reduced to?
And will it be per annum or will it be over whole period of the lease.I always love the economics of perception to the general public. Get rid of Audi and BMW. etc…. While I have never been interested i those makes as they dont fit my needs, i find it difficult to understand that volvo remains and there are other cars which cost more, but not something i am going to worry about. The 50% policy on british built cars could be quite restrictive, (unless a precurser to raise tarrifs to make cars built in the uk like USA have done lol…) I am unaware of the cross section of car types for motability.
There is no way I could afford or fit for use the cars manaufactured in the UK. Electric vans are unsutiable. I am thankful ford and VW are still listed. Whie its obviusly great to have choice and there is a lot for some people, when i take in account ap and requirements, i am left with a handful of cars. Which i still believe is good, for me personally I think its a skoda kodiaq, or the vw alternative depending on price and boot height. or the VW and Ford van detrivaties. Both i hope remain as i am guessing a lot of other wheelchair users opt for these. I looked at a toyota corolla estate and the boot was too small.Looking at uk car manufacturers, I cant imagine land rovers and range rovers joining the scheme. Niether can i see the £75k levc l380 joining the scheme anytime soon.
I suffer from brain fog i hope my message makes sense. Its nver my intenetion to upset anyone so please do not take offence and let me know so i can correct anything.
every 3 years I’d need to find 5 grand!? I think that’s unaffordable.
It is, when theres nothing in it for you at the end of 3 years, other than a couple hundred quid!
They have seriously overlooked the VAT aspect on AP’s – As a disabled person, equipment like heated seats, heated steerin wheel and in many cases 360 camera and auto tailgate are essential needs and not luxuries. To get these basic needs, it is often the case, a higher trim in a particular model is needed, which will almost certainly command an AP, with the additional cost of VAT added ontop of any AP!
Using your figure of £5,000, an additional £1,000 will be added ontop to cover the VAT element (£6,000). The only way, I can see where VAT won’t be added, is if the vehicle is adequately and permanently adapted or its a WAV.
every 3 years I’d need to find 5 grand!? I think that’s unaffordable.
It is, when theres nothing in it for you at the end of 3 years, other than a couple hundred quid! They have seriously overlooked the VAT aspect on AP’s – As a disabled person, equipment like heated seats, heated steerin wheel and in many cases 360 camera and auto tailgate are essential needs and not luxuries. To get these basic needs, it is often the case, a higher trim in a particular model is needed, which will almost certainly command an AP, with the additional cost of VAT added ontop of any AP! Using your figure of £5,000, an additional £1,000 will be added ontop to cover the VAT element (£6,000). The only way, I can see where VAT won’t be added, is if the vehicle is adequately and permanently adapted or its a WAV.
That £5,000 included the VAT increase but not the Insurance Tax, I think I should have been clearer. Yes, there are quite a few ‘Luxuries’ that really are medical needs and shouldn’t be regarded as too much to ask, considering the technology on so many cars these days.
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’t get my head around how we pay 12% insurance tax on something we don’t even know how much it cost.
Maybe its like the tea ladies 3p per mile EV tax when it was ask how they would implement it she had no answer other than they had until 2028 too think of something.
Making it up as we go along give us confidence in our future doesn’t it.
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