The Department for Work and Pensions (DWP) Motability Scheme is set for significant changes in 2026, following new tax announcements from the Labour government. These adjustments will affect how the scheme operates and the costs for providing mobility solutions to disabled people across the UK.
Key Tax Changes from July 2026
From July 2026, two major tax modifications will be applied to Motability Scheme leases. The first is the introduction of Value Added Tax (VAT) on Advance Payments. Motability has stated that as it passes on savings from tax exemptions directly to customers, this new VAT charge will increase overall costs. The organisation's plan is to review the scheme's workings to absorb these extra expenses where possible.
The second change is the application of Insurance Premium Tax (IPT) at the standard rate. IPT is a government levy on most UK insurance policies, including car insurance. From July 2026, it will be added to scheme leases. As of November 2025, the standard rate for this tax was 12%.
Motability has emphasised that there will be no immediate impact on customer prices, as the changes are not due until mid-2026. The scheme will continue its practice of reviewing prices every three months, with the next update scheduled for 1 January.
Vehicle Changes and Scheme Refocus
In a move to refocus on practical and affordable mobility, the DWP has removed certain premium brands from the Motability Scheme. Brands such as BMW and Mercedes-Benz will no longer be available through the scheme from 2026.
This shift in focus is part of a broader effort to ensure the scheme remains sustainable and accessible for its core users, prioritising essential mobility over luxury models.
Exemptions and What Stays the Same
Amidst these changes, some important elements will remain unaffected. Wheelchair Accessible Vehicles (WAVs) and adaptations will continue to be fully exempt from both VAT and Insurance Premium Tax. This ensures that those with the most significant mobility needs are protected from the increased costs.
Furthermore, Vehicle Excise Duty (VED), commonly known as road tax, will see no changes for scheme customers as a result of the Autumn Budget. In terms of scooters and powered wheelchairs, Motability has confirmed there are no immediate changes planned, though pricing is under ongoing review to ensure long-term sustainability.
The combined effect of these tax changes increases the overall cost of running the Motability Scheme. The organisation's ongoing review aims to manage these financial pressures while continuing to provide vital mobility assistance to disabled people across the United Kingdom.
