The Motability Scheme helps 815,000 disabled people lease cars, wheelchair accessible vehicles, scooters or powered wheelchairs
Major changes were announced last November(Image: Getty Images)
The UK Government announced in November that changes to tax exemptions for the Motability Scheme are set to be implemented. The scheme is a vital resource for many disabled people and families, offering them the ability to lease a car, wheelchair accessible vehicle, scooter or powered wheelchair.
Those eligible can exchange all or part of their enhanced mobility award from a qualifying disability benefit such as Personal Independence Payment (PIP). It’s important to clarify that no one using the Motability Scheme gets a ‘free car’, and the majority of the 815,000 people currently leasing often have to make an additional upfront payment.
The Scheme will continue to offer the best possible leasing package for disabled people, with a range of suitable vehicles to meet their needs – existing leases will not be affected by any changes. The Motability Foundation, the independent charity responsible for overseeing the Scheme, will persist in providing means-tested grants to help eligible people who might otherwise struggle to afford specialist adaptations for a vehicle leased through the Scheme.
HM Revenue and Customs (HMRC) has provided online guidance outlining the proposed changes to tax relief, who will be impacted, and the potential effects of the reforms. A summary of the changes is given below, with full details available on GOV.UK., reports the Daily Record.
What is changing?
From 1 July, changes are on the horizon for qualifying schemes like the Motability scheme, which currently stands alone in offering vehicles on favourable tax terms to disabled individuals receiving suitable welfare benefits.
Reasons for change
The guidance clarifies: “The policy objective for the measure is to promote fairness and value for money for taxpayers. VAT changes restrict tax reliefs for more expensive vehicles provided under qualifying schemes, while IPT changes bring the tax treatment of qualifying schemes in line with other commercial lease providers.”
Who is likely to be affected
Come 1 July 2026, qualifying schemes leasing vehicles to eligible disabled people will feel the pinch – at present, this only applies to the Motability scheme – as well as businesses providing insurance to such qualifying schemes.
VAT
Eligible benefits doled out by the DWP, Ministry of Defence, Social Security Scotland, or Department for Communities (Northern Ireland) can be put towards lease costs.
This chunk of the payment will be left out when working out the supply’s value for VAT purposes, ensuring no VAT is slapped on it. However, the move will scrap the VAT zero-rating on top-up payments – extra cash forked out beyond the transferred eligible welfare benefits – for those splashing out to lease pricier vehicles.
“The policy objective for the measure is to promote fairness and value for money for taxpayers. VAT changes restrict tax reliefs for more expensive vehicles provided under qualifying schemes, while IPT changes bring the tax treatment of qualifying schemes in line with other commercial lease providers.”
Such top-up payments will attract the standard VAT rate of 20 per cent. Vehicles specifically designed or substantially and permanently adapted for wheelchair or stretcher users will continue to benefit from the existing zero rate.
As a result, top-up payments for these vehicles will retain their zero-rated status.
Insurance Premium Tax
According to the guidance: “This measure restricts the Insurance Premium Tax (IPT) exemption for insurance on vehicles leased through qualifying motor vehicle leasing schemes.
“Once changes take effect, the exemption will apply only to insurance contracts relating to vehicles that are substantially and permanently adapted for wheelchair or stretcher users, or originally designed for their use, where leased through a qualifying scheme.
“All other vehicles provided through such schemes will be subject to IPT at the standard rate of 12 per cent. The liability of insurance relating to all vehicles provided through leases entered into prior to 1 July 2026 will remain exempt.”
Eligibility for the Motability Scheme
To join the Motability Scheme, you must be in receipt of one of the qualifying mobility allowances, with a minimum of 12 months remaining on your award. If you receive a mobility allowance due to a disability or condition affecting your ability to move around, you may be able to use it to lease a vehicle via the Motability Scheme.
To apply, you need to receive one of the qualifying mobility allowances and have at least 12 months left on your award:
- AFIP: Armed Forces Independence Payment
- ADP: Enhanced rate mobility part of Adult Disability Payment
- DLA: Higher rate mobility part of Disability Living Allowance
- WPMS: War Pensioners’ Mobility Supplement
- PIP: Higher rate mobility part of Personal Independence Payment
- Scottish Adult DLA: Higher rate mobility component of Scottish Adult Disability Living Allowance
- CDP: Higher rate mobility component of Child Disability Payment
Guidance on the Motability website states: “You cannot apply to join the Scheme if you receive a lower rate or component of the mobility allowance or if you receive Attendance Allowance, Carer’s Allowance or Employment and Support Allowance (ESA).”
A full guide on how the scheme works can be found on the Motability website. When selecting a car or wheelchair-accessible vehicle, bear in mind that whilst some models require only part or all of your mobility award payment, the majority necessitate an advance payment typically ranging from £100 to £2,000.
What else is included in the lease?
At present, you will get a brand-new vehicle, and a full package which includes:
- 60,000 mileage allowance over three years, or 100,000 for WAVWheelchair Accessible Vehicles
- Many adaptations at no extra cost
- Servicing and maintenance
- Windscreen repair or replacement
- Yearly tax
- Kwik Fit replacement tyres
- Full RAC breakdown assistance
- Three drivers – you can change these whenever you like
- Insurance
Full details on the Motability Scheme can be found on the website here.
