The Department for Work and Pensions (DWP) has provided an update following MPs voicing worries about the impact of tax changes announced in the Budget on Motability users. Earlier this week, Minister of State for the DWP, Sir Stephen Timms, confirmed that come next July, some 'tax reliefs' will be axed.
The Government has decided to prohibit premium brands like BMW and Mercedes from being used. It hass been confirmed by the Government that VAT will apply to Advance Payments and Insurance Premium Tax will apply to Scheme leases starting from July 2026.
Motability has warned that this change will hike up the cost of a lease on the scheme and 'we anticipate the average Advance Payment (upfront cost) of a vehicle, will increase by around £400 over the three-year package'.
In response to written questions in Parliament, the DfT has offered more details. Labour's Neil Duncan-Jordan queried Sir Stephen: "What assessment he has made of the potential impact of applying Insurance Premium Tax to certain vehicles under the Motability Scheme from 1 July 2026 to levels of (a) poverty and (b) financial hardship among people with disabilities."
In response, the Minister of State clarified that grants could be made available to help those unable to afford advance payments: "The package of reforms to the Motability Scheme announced as part of the Budget will ensure the Scheme delivers fairness for the taxpayer, while continuing to support disabled people.
"The Scheme will continue to offer a choice of affordable vehicles to meet a range of accessibility needs and offer vehicles which require no advance payment, meaning that people will be able to access a suitable vehicle using only their qualifying disability benefit. Insurance Premium Tax (IPT) will apply to leases at the standard rate, bringing tax treatment in line with commercial leasing firms."
"Existing leases and vehicles substantially designed for, or adapted for, wheelchair or stretcher users will continue to benefit from VAT reliefs on advance payments and the IPT exemption, in recognition of the additional costs associated with these vehicles. Motability Foundation, the independent charity with responsibility for overseeing the Scheme, will continue to offer means-tested grants to support eligible people who would otherwise struggle to afford the advance payment."
Labour MP Ruth Jones questioned Sir Stephen: "To ask the Secretary of State for Work and Pensions, what assessment he has made of the potential impact of the Government's proposed changes to Motability on those with standard leases."
Sir Stephen reassured that some vehicles won't necessitate an upfront payment: "The Motability Scheme will continue to offer a choice of vehicles to meet a range of accessibility needs. The Scheme will continue to offer vehicles which require no advance payment, meaning that people will be able to access a suitable vehicle using only their qualifying disability benefit. Motability Operations, an independent commercial company which delivers the Scheme, will continue to prioritise customer needs, ensuring vehicles remain affordable."
Regarding the changes announced in the November budget, Motability stated: "The tax changes will increase the cost of a lease on the Scheme and we anticipate the average Advance Payment (upfront cost) of a vehicle, will increase by around £400 over the three-year package. We will continue to provide a range of around 40 to 50 vehicles available to lease with no upfront payment.
"Changes to the Scheme's package are expected to be introduced from July 2026. Motability Operations, which runs the Scheme, will begin engaging with customers about the proposed changes in spring 2026. Proposed changes to the leasing package will undergo disability impact assessment by the Motability Foundation, which oversees the Scheme, before any changes are approved, announced and implemented. As the Scheme evolves and we fully understand the impacts changes may have on disabled people, the Foundation will also need to consider how its grant programmes best support those most in need."
