Major reforms to the Motability scheme, designed to ensure fairness for taxpayers while continuing to support mobility for disabled people, came into force on 1 July 2026. These changes are projected to save the taxpayer £1 billion by 2030 and are part of a wider government drive to overhaul the welfare system, aiming for nearly £2 billion in savings by the end of the decade.
Under the new rules, Value Added Tax (VAT) is now applied to advance payments – the optional one-off top-up paid by customers choosing a more expensive vehicle. Additionally, Insurance Premium Tax (IPT) is now applicable to new leases. Both these adjustments were initially announced during the Autumn Budget and signify a shift in how the scheme is funded.
The modifications follow earlier action taken immediately after the Budget to remove luxury vehicles, including brands like BMW and Mercedes, from the Motability scheme. This move aimed to realign the scheme with its original purpose: providing practical vehicles for disabled individuals, rather than subsidising premium features beyond what most UK citizens can afford.
Work and Pensions Secretary Pat McFadden MP commented on the reforms, stating that the changes are driven by a principle of fairness for the taxpayer, disabled people, and the country. He emphasised that while saving £1 billion of taxpayer money, the government is ensuring the scheme continues to support mobility and independence, contributing to a fair welfare system and a robust economy.
Despite the changes, disabled people on enhanced mobility benefits will continue to receive their full weekly award of £77.05 and remain eligible for the scheme. Vehicles requiring no advance payment are still available, meaning individuals can access a car using their benefit alone. The core Motability package, including insurance for up to three drivers, UK breakdown cover, and maintenance, remains in place, with no changes to existing leases or eligibility for PIP or the Motability scheme. The Motability Foundation will also continue to offer means-tested grants to assist those who might struggle with advance payments or adaptations, and these changes do not apply to Wheelchair Accessible Vehicles.