MOTABILITY SCHEME - IMPORTANT TAX CHANGES

All you need to know about the up and coming VAT and Insurance Premium Tax.

• BARTLETTS want to make sure every customer has a clear picture of the financial changes coming in 2026 - and what they mean for you personally.

  The Government announced.

  As part of the Autumn Budget 2025, Chancellor Rachel Reeves announced reforms to the tax reliefs that have historically supported the Motability Scheme. The Treasury has framed these changes to “focus support on the scheme’s core objectives” - namely, ensuring that practical, accessible vehicles remain available to disabled people who rely on the scheme most.

  Two specific tax changes will come into effect for new leases starting from 1 July 2026:

  1. VAT on Advance Payments

  Currently, the Advance Payment you make when choosing a vehicle that costs more than the standard weekly allowance covers is exempt from VAT. From 1 July 2026, that exemption ends. The standard rate of VAT, 20%, will apply to Advance Payments on new leases.

  To put that in practical terms: Motability Operations estimates that the average Advance Payment will increase by approximately £400 over a three-year lease as a result. This will vary depending on the vehicle you choose. Many vehicles on the scheme - around 40 to 50 models - are available with no Advance Payment at all, and those customers will not be affected in this respect.

  2. Insurance Premium Tax on Motability Scheme Insurance

  The Motability Scheme has always included comprehensive insurance as part of the lease package - one of its most valued features. Until now, that insurance has been exempt from Insurance Premium Tax (IPT). From 1 July 2026, IPT at the standard rate of 12% will be applied to insurance contracts on new Motability leases.

  No changes!

  It is important to be clear about what these changes do not affect:

  • Wheelchair Accessible Vehicles (WAVs) remain entirely exempt from both the VAT and IPT changes. The tax changes do not apply to vehicles designed or substantially and permanently adapted for wheelchair or stretcher users.

  • Existing leases are completely unaffected. If you are already in a Motability agreement, nothing changes for you until your next renewal.

  • VAT on weekly lease costs and VAT on vehicle resale remain in place; these reliefs are not being removed.

  • Disability benefit payments and PIP eligibility are entirely separate from these changes and are not affected.

  • Vehicle Excise Duty (VED) - often called road tax is also not changing as a result of the Autumn Budget for Motability Scheme customers.

• 

  Why?

  The Government has argued that certain aspects of the scheme’s tax reliefs have gone beyond the scheme’s original purpose, particularly in subsidising top-up payments for more expensive, premium vehicles. The changes are projected to save the Treasury over £1 billion over the next five years, with part of that revenue directed towards lifting 450,000 children out of poverty through the removal of the two-child Universal Credit limit.

  Motability Operations, which runs the scheme, has acknowledged the changes and is working to limit their impact on customers. Alongside the tax changes, the scheme is reviewing areas such as mileage allowances and package inclusions to help offset rising costs where possible.

• 

  What shoud I do?

  If your current lease is coming to an end and you are thinking about your next vehicle, it may be worth considering your timing carefully. Any new lease starting before 1 July 2026 will not be subject to these new taxes. If you are due for renewal, speaking to one of our Motability specialists soon could mean securing your next agreement before the changes take effect.

  If your renewal falls after July 2026, we encourage you to explore the full range of vehicles still available on the scheme - including those with no Advance Payment required to understand your options before committing.

• Choose BARTLETTS - Motability Scheme specialists.

  At BARTLETTS, there's nothing we like more than supporting our Motability Scheme customers. Our specialist team are here to talk you through how these changes they might affect your next agreement, what vehicles are available within your budget, and how to make the most of the Motability Scheme.

  To speak with a Motability specialist, please contact BARTLETTS today.

  Thank you for choosing BARTLETTS Hastings.

  We look forward to welcoming you soon!