Major changes are now in effect for new leases under the Motability scheme, as the company responds to the need to offset tax charges. The Motability scheme enables individuals with disabilities to exchange their qualifying mobility allowance for the lease of a new vehicle, scooter, or powered wheelchair.
Following announcements made in the autumn Budget last November, it was confirmed that VAT and Insurance Premium tax would now be applicable to most new leases ordered starting July 1, 2026. This adjustment is estimated to cost Motability an additional £300 million in taxes, leading to changes in mileage allowances.
Effective immediately, new contracts will come with a yearly mileage allowance of 10,000 miles, reduced from the previous 20,000 miles. Any mileage beyond this limit will incur a charge of 25p per additional mile, up from the previous 5p per mile charge.
Furthermore, the allowable number of tire replacements has been revised to six over a three-year lease term, and up to ten tire replacements are permitted for a five-year WAV lease, with a maximum of six for damage. Additionally, an administrative fee must now be paid, and notification to the RAC is required for EU travel.
Existing Motability leaseholders will not be affected by these modifications until the end of their current contracts. The Motability scheme has seen significant changes in recent months, including the introduction and subsequent removal of compulsory “Drive Smart” black boxes for drivers under 30 or new to the scheme.
Luxury brand vehicles such as BMWs and Mercedes have been excluded from the scheme, following decisions made by Chancellor Rachel Reeves. Eligibility for Motability requires individuals to receive specific mobility allowances, including the Higher Rate Mobility Component of Disability Living Allowance (DLA) and others.
Motability Operations CEO Andrew Miller acknowledged the impact of tax changes on the scheme but highlighted the importance of maintaining support for disabled individuals in accessing mobility and independence. Government officials anticipate saving £1 billion by 2030 through Motability reforms, emphasizing the commitment to fairness and efficiency in welfare support.
Pat McFadden, Secretary for Work and Pensions, emphasized the government’s focus on fairness for taxpayers and disabled individuals while ensuring the sustainability of the scheme. The goal is to build a welfare system and economy that prioritizes equality and support for all individuals.