What the latest Motability tax changes mean for you

There are some tax changes to the Motability Scheme you may not be aware of. Here’s what you need to know if you’re planning to lease a car through it.

If you’re eligible and looking to lease a vehicle through the Motability Scheme this summer, it’s worth knowing that you’ll now need to pay VAT on some lease costs when you order a new car.

But what does this mean in practice? Here’s everything you need to know.

Remember, you can buy a brand new or used car right here on Carwow. And you can sell your car, too. We’re here to help you through every step of your car-changing journey.

What the Motability tax changes mean for you

There are now some changes to VAT and Insurance Premium Tax (IPT) – a government-levied indirect tax – on the Motability scheme. That’s because the UK government has confirmed that most scheme leases will start to include standard rate VAT.

However, not everyone will be affected in the same way. You may still qualify for VAT exemption depending on your circumstances and the type of vehicle you need.

Who doesn’t pay VAT

VAT concessions will still apply if you meet certain HMRC criteria. This is mainly for if you use a wheelchair or are carried on a stretcher, and if your vehicle is specially adapted to support that.

This includes things such as:

• Most Wheelchair Accessible Vehicles (WAVs)
• Vehicles with major adaptations

What VAT actually applies to

If VAT does apply to your lease, it won’t be taken from your mobility allowance payments. Instead, it will apply to certain extra costs, such as:

• Your Advance Payment
• Excess mileage charges
• Early termination fees

So it’s not a blanket charge across everything you pay, but rather it applies to specific parts of the lease.

Once you order your new car, your lease agreement will show whether VAT applies. However, if your vehicle qualifies for a VAT exemption, you’ll be asked to complete a Customer Eligibility Declaration to confirm your situation.

What about vehicle adaptations?

If you need adaptations to help you drive or travel in your vehicle, the way VAT is applied depends on what kind it is.

Major adaptations such as built-in equipment or specialist driving controls which are usually for customers with more complex mobility needs, may, in some cases, still qualify for VAT exemptions if HMRC criteria are met.

Meanwhile, smaller adaptations fitted to help you use your car won’t have VAT added to the adaptation cost itself, as long as they’re required for your disability.

What else has changed for new leases?

Here are some other things that are now part of the scheme.

Mileage allowance

Orders now placed through the scheme include 30,000 miles over three years, or 50,000 for a new WAV on a five-year lease.
If you already have a lease, or ordered one before the 1 July, your mileage allowance stays the same.

Go over this allowance and you can pay for extra miles. Here, you’ll be charged 25p per mile (or 21p per mile if VAT exemptions apply), covering both distance and insurance.

Tyre replacement

Motability has also updated its fair usage policy to reflect how tyres are typically used during a lease, with most customers replacing two or fewer over three years.

Tyre replacements are included in your lease, but you can now only replace up to six tyres on a three-year-lease (up to four for damage, or up to 10 on a five-year lease (up to six for damage).

Motability said that these new limits are “designed to cover what most people need”.

EU breakdown cover

Planning to take your car to Europe? Under the scheme, as you’re not the registered owner of the vehicle, you’ll need a VE103 certificate.

The certificate gives you permission to take the vehicle outside of the UK and lasts for 12 months and covers all trips within this period.

A £22 admin fee for the VE103 certificate applies to all orders, which you can get from the RAC or the AA.

However, if you live in Northern Ireland, you won’t need to pay the £22 admin fee when travelling to the Republic of Ireland.

Car change? Carwow!

Looking for a new set of wheels? With Carwow you can sell your car quickly and for a fair price – as well as find great offers on your next one. Whether you’re looking to buy a car brand new, are after something used or you want to explore car leasing options, Carwow is your one stop shop for new car deals.

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