Disabled Motability scheme users face new charges after government tax hikes

Disabled people using the Motability car leasing scheme are set to face higher costs as the organisation seeks to offset £300 million in new taxes introduced in last year’s autumn budget.

Changes include revised mileage allowances, new charges for taking vehicles abroad, and advance payment increases of up to £400 for new leases starting after July 1.

It comes amid a backdrop of fierce political scrutiny towards the scheme, with the Conservative leader Kemi Badenoch using her speech at last year’s party conference to promise far tighter restrictions for those with all but the most “severe physical mobility needs”.

What is the Motability Scheme?
The Motability scheme allows people receiving certain disability benefits to direct some or all of their payments toward leasing a new car or accessible vehicle.

Eligibility is restricted to those entitled to the higher or enhanced rate of the mobility component of disability benefit, and the scheme is currently used by around 890,000 people across the UK.

Last month, Reform UK said it planned to make sweeping changes to Motability to “end the abuse” of the scheme.

Conservative leader Kemi Badenoch echoed this sentiment at her party’s conference in Manchester last year as well, calling for tougher eligibility criteria.

What’s causing the higher costs?
The changes come from decisions made Reeves’ autumn budget.

The government announced it would introduce VAT on advance payments for the scheme and apply insurance premium tax to leases from July 2026.

Chancellor Rachel Reeves also announced that the scheme would no longer use “luxury cars” such as BMW and Mercedes-Benz vehicles.

Motability says these combined measures will cost the business £300 million in additional taxes.

What changes will users of the scheme see?
On Thursday, chief executive of Motability Operations, Andrew Miller, told people on the scheme that it will introduce changes to deal with the cost.

“Together, these tax changes mean it will cost significantly more to run the scheme,” he said in a letter.

“If we did nothing, the average cost of a new lease would increase by around £1,100. It was clear to me that simply passing all these costs on to customers was not an option.

“We had to carefully consider how to reduce the tax impact as much as possible but also, focusing on changes that reflect how most customers already use their vehicles.”

He outlined plans to reduce the annual mileage allowances, increase excess mileage fees, change tyre replacement limits and introduce a charge for taking cars abroad.

It is understood that customers taking new leases after July 1 will see an average increase to advance payments of between £300 and £400.

Written by: ITV News
https://www.itv.com/news/2026-03-27/disabled-motability-scheme-users-face-new-charges-after-government-tax-hikes