Motability tax changes are coming – here’s what it means for you

Tax changes are coming to the Motability Scheme soon. Here’s what you need to know if you’re planning to lease a car.

If you’re eligible and looking to lease a vehicle through the Motability Scheme this summer, it’s worth knowing that tax changes are coming into effect from 1 July 2026. If you order a car on or after this date, you’ll need to pay VAT on some lease costs.

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

From 1 July 2026, some changes are coming 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.

That said, 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 won’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 like:

• 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.

What it means depending on when you order your vehicle

If you order a car between now and before 1 July, nothing changes for your agreement. However, if your car is delivered after this date, you may still see VAT applied to some additional charges such as excess mileage or early termination fees.

Rest assured your Advance Payment won’t change, and its pricing is protected at the time you place your order.

If you order on or after 1 July, 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.

Why is the scheme changing?

Andrew Miller, CEO of Motability Operations, which operates the scheme, explains why these changes were necessary.

He said: “We’ve taken careful steps to manage these additional costs so we can keep the scheme affordable and sustainable for the long term.

“Our priority has been to protect what matters most in your lease, reduce the impact of tax changes, and maintain the good value of the scheme.”

What else is changing for new leases?

Here are some other changes you’ll be seeing to the scheme from 1 July.

Mileage allowance

Orders placed from this date will 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, your mileage allowance stays the same. These updates only apply to new orders from 1 July.

If you go over this allowance, 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 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 Motability has reduced the number of replacements. You can now 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”.

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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