Disabled Drivers on New Motability Leases Face VAT Charges and Lower Mileage Caps

• New Motability leases from this month add VAT and Insurance Premium Tax to the Advance Payment, excess mileage charges and early termination fees.
• The annual mileage allowance on a new car lease drops to an average of 10,000 miles a year, with extra miles charged on top.
• Existing Motability customers are unaffected for now, but anyone applying for a new lease faces a different deal than the one their neighbour signed last year.

A cheaper scheme just got more expensive for new applicants

Disabled drivers applying for a new Motability lease this month are walking into a scheme that costs more and stretches further than the one their friends signed up to twelve months ago. Scotland joined the rest of the UK on 1 September 2026, meaning every new applicant across the whole of Britain now faces VAT and Insurance Premium Tax on parts of their lease, a lower mileage allowance, and a capped tyre replacement policy that did not exist before July.

None of this touches a lease that is already running. Motability Operations has been clear that existing customers keep their current terms until renewal. The changes apply only to new applications placed on or after 1 July 2026 in England, Wales and Northern Ireland, and from 1 September 2026 in Scotland. But large numbers of people join or renew on the scheme every year, and every one of them from this point forward signs a different contract to the one their predecessor did.

Where the VAT actually lands

The tax change traces back to last year’s Autumn Budget, when the government confirmed it would apply VAT to Motability leases for the first time. The Motability Foundation has structured the change so VAT does not touch the core lease payments that come out of a customer’s mobility allowance. Instead, VAT at the standard 20 percent rate now applies to three specific charges: the Advance Payment made at the start of a lease, any excess mileage charges, and early termination fees if a customer needs to hand the car back before the contract ends.

For someone paying a four figure Advance Payment on a new vehicle, that is a real cost added to the day the keys change hands. For anyone who ends up needing to exit a lease early, whether through a change in circumstances or a change in mobility needs, the termination fee now carries a fifth on top.

The mileage cut that catches out one in four drivers

The bigger change for day to day driving is mileage. New car leases taken out from July 2026 come with an allowance of 30,000 miles spread over the three year lease, which works out at an average of 10,000 miles a year. Wheelchair accessible vehicle leases get 50,000 miles over five years, the same 10,000 mile yearly average. Previous Motability leases carried a more generous allowance, and the reduction is significant enough that Motability’s own figures show roughly three in four customers drive within the new limit, averaging around 7,500 miles a year. That leaves one in four customers who will not.

Anyone who exceeds the allowance pays for the extra miles, and because excess mileage charges are one of the three items now carrying VAT, going over the limit costs more than it would have done under the old rules. Motability says it is looking at ways to soften the impact for customers who need to drive more for specific reasons, but has not yet published a formal exceptions process. Anyone who knows their driving pattern runs above 10,000 miles a year, whether for hospital appointments, work, or caring for a family member, should raise this with a Motability adviser before signing a new lease rather than after the mileage has racked up.

Tyres, EU breakdown cover and what still stays the same

New leases from July 2026 also come with a capped tyre replacement policy for the first time. A three year car lease now includes up to six tyre replacements, of which up to four can be for accidental damage. A five year wheelchair accessible vehicle lease includes up to ten tyres, with up to six for accidental damage. Motability says the average customer replaces two tyres over a three year lease, so the new caps are designed to sit above typical wear and tear, but a driver who picks up repeated punctures or kerbs a wheel more than a couple of times will now find a limit where none existed before.

Taking a Motability vehicle abroad also changed. Customers can still drive their car in the EU, but now need to request a VE103 form from the RAC and pay an administration fee to do so. Motability notes that fewer than one percent of customers used EU breakdown cover last year, but for the minority who do drive to the continent it is a new cost and a new piece of paperwork that did not exist before.

What has not changed matters just as much. Every Motability lease still includes insurance for up to three named drivers, full servicing and maintenance, UK breakdown cover, and support from a dedicated Scheme adviser. The core package that makes the scheme valuable to disabled drivers remains intact. It is the edges of the deal, the deposit, the mileage, the tyres and the overseas cover, that have been trimmed.

The telematics u-turn that came before this

This is not the first change to the scheme this year, and it followed a bruising few weeks for Motability’s reputation among its own customers. In April 2026, Motability made its Drive Smart telematics device compulsory for every first time car and wheelchair accessible vehicle lease. A small box fitted to the vehicle tracked speed, braking and phone use, and the scheme’s own guidance confirmed that repeated low scores could affect a customer’s future access to a lease. There was no opt-out.

Disabled customers and campaign groups objected strongly, arguing the scoring system penalised driving patterns shaped by disability and adapted vehicles rather than by risk. Motability paused Drive Smart on 14 May 2026, and by 22 May had begun removing existing customers from the programme unless they actively chose to stay on it. Anyone taking out a new lease today will not be forced onto telematics, though it remains available for customers who want it.

What to do before signing

Anyone applying for a new Motability lease now should ask three questions before signing. First, what the total Advance Payment will be once VAT is added, since this is a one off cost due at the start of the contract. Second, whether their typical annual mileage sits above or below 10,000 miles, since anything over that figure now carries a VAT-inclusive excess charge for the life of the lease. Third, whether they are likely to need the vehicle in the EU, since this now requires a VE103 form and a fee arranged in advance through the RAC rather than being included automatically.

Existing customers do not need to do anything differently for now, but should expect these terms to apply the next time they renew. The Motability Foundation says it remains committed to spending up to £650 million on grants by 2030 to offset the impact of the wider tax changes, and anyone struggling with the increased costs of a new lease can apply for an individual grant through the Foundation directly.

Sources:

• Motability Foundation: Changes to the Motability Scheme from 1 July 2026
• Motability Scheme: Scheme changes hub
• Fleet News: Motability removes compulsory telematics for drivers
• Regit: Motability rule changes for Scottish drivers