The Department for Work and Pensions (DWP) has confirmed four significant new rules affecting individuals receiving Personal Independence Payment (PIP) and Disability Living Allowance (DLA) as part of upcoming changes to the Motability Scheme.
Announced in the Autumn Budget, these changes will introduce Value Added Tax (VAT) and Insurance Premium Tax on most new leases starting from 1 July 2026. This adjustment has a wide-reaching impact on thousands of Motability Scheme users, many of whom are PIP and DLA claimants.
Andrew Miller, CEO of the Motability Scheme, addressed the concerns these new costs may bring: “We’ve taken careful steps to manage these additional costs so we can keep the Scheme affordable and sustainable for the long term. We understand that any increase or alteration can be worrying, especially for those who rely on the Scheme daily for their independence.”
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Key updates include:
- A 20% VAT charge on top-up payments.
- An Insurance Premium Tax at the standard 12% rate for vehicles leased through the scheme.
- Revised mileage reimbursement rates for drivers.
- The introduction of a VE103 certificate requirement and a £22 administration fee for travel to the European Union on orders placed after 1 July 2026.
Miller also highlighted that these changes will not affect Motability customers in Scotland, where the scheme operates under the Accessible Vehicles and Equipment Scheme (AVES). The Motability Scheme is collaborating with the Scottish Government to assess the potential impact on AVES and will provide updates accordingly.
For customers requiring vehicle adaptations due to disabilities, the cost of necessary modifications will remain exempt from VAT, provided that a Customer Eligibility Declaration is submitted when ordering. This exemption applies solely to adaptations essential for safe and comfortable vehicle use. However, VAT will continue to apply to the lease itself.
These adaptations typically involve permanent structural changes, such as specialized driving controls or built-in equipment, serving as long-term mobility solutions. Vehicles with such adaptations may qualify for VAT relief if they meet HMRC’s disability exemption criteria.
These reforms mark a significant shift in the Motability Scheme, aiming to balance financial sustainability while maintaining essential support for disabled drivers across the UK.