Motability Scheme Mileage Allowance Halved And Excess Charges Up Fivefold From July

The Motability Scheme is about to undergo its most significant overhaul in years, and the changes coming on 1 July 2026 will directly affect the daily driving lives of hundreds of thousands of people who depend on it. The headline figure is stark: the annual mileage allowance is being cut from 20,000 miles to 10,000, and the charge for every mile driven beyond that limit is rising from 5p to 25p.

For someone who currently drives 15,000 miles a year and stays comfortably within the existing allowance, the same driving pattern under the new rules would generate 5,000 excess miles at 25p each. That is £1,250 per year in additional charges, or £3,750 over a three-year lease, for a level of use that previously cost nothing extra.

The mileage cut is just one part of a broader package of changes that also includes new limits on tyre replacements, a paid certificate for overseas travel, VAT being applied to advance payments for the first time, and the removal of five premium car brands from the scheme altogether. Existing lease holders are not affected. Every change applies only to new orders placed on or after 1 July 2026.

Why The Changes Are Happening

The trigger is a change to how the Motability Scheme is taxed. From 1 July, VAT at 20 per cent will apply to advance payments, excess mileage charges, and early termination fees on new leases. Insurance Premium Tax at 12 per cent will also be applied to insurance contracts within the lease for the first time. These are costs that the scheme previously did not have to absorb.

Motability Operations says the combined effect of these tax changes has forced it to restructure the scheme to keep it financially sustainable. Andrew Miller, the organisation’s chief executive, acknowledged the scale of what is being asked of users. “The scheme is not just about fixing the here and now, it’s about fixing and maintaining us for many, many years to come,” he said. “We totally understand and recognise these are quite impactful changes for some of you.”

The changes follow comments made by Chancellor Rachel Reeves during her Autumn Budget speech, in which she stated that the Motability Scheme “was set up to protect the most vulnerable, not to subsidise the lease on a Mercedes-Benz.” That remark signalled the government’s intention to reshape the scheme, and the July changes are the direct result.

The Mileage Allowance In Detail

Under the current rules, Motability users can drive up to 20,000 miles per year as part of their lease, with an excess charge of just 5p per mile beyond that threshold. Over a standard three-year lease, that gives a total allowance of 60,000 miles before any additional charges apply.

From 1 July, new leases will carry an annual allowance of 10,000 miles, giving a total of 30,000 miles over three years. Wheelchair Accessible Vehicles on five-year leases will have a total allowance of 50,000 miles over the full lease term. Any miles driven beyond the allowance will be charged at 25p per mile including standard rate VAT, payable at the end of the lease.

The scale of this change is difficult to overstate. A reduction from 20,000 to 10,000 miles per year is not a trim. It is a halving of the distance users can drive without penalty. And the increase from 5p to 25p per excess mile is a fivefold jump that transforms what was previously a token charge into a meaningful financial penalty.

To put 10,000 miles per year in context, that works out at roughly 192 miles per week, or 27 miles per day. For someone living in a rural area with limited public transport who relies on their Motability vehicle to reach medical appointments, shops, and family, 10,000 miles can be used up remarkably quickly. A 30-mile round trip to a hospital three times a week adds up to 4,680 miles per year on that journey alone, leaving just over 5,300 miles for everything else.

Motability has said that the average customer currently drives fewer than 10,000 miles per year, which is why it considers the new allowance appropriate for the majority. But averages conceal wide variation, and those who drive more than the average are likely to be the people who depend on their vehicles the most.

Tyre Replacement Limits

The scheme will also introduce caps on tyre replacements for the first time. Users on a three-year lease will be able to replace up to six tyres over the life of the lease, with a maximum of four of those replacements being for damage. Those on five-year leases can replace up to ten tyres, with six allowed for damage.

Motability says this reflects actual usage, noting that the average customer replaces only two tyres during a three-year lease. The reduced mileage allowance may also mean less tyre wear overall, which could offset some of the impact.

Tyre replacements remain included as part of the lease within these limits, and the scheme describes the new caps as falling within “fair use.” For the majority of users who drive moderate distances and avoid pothole damage, the new limits are unlikely to cause problems. But for drivers in areas with poor road surfaces or those who cover higher mileage, the cap could mean paying for replacement tyres out of pocket once the allowance is used up.

Overseas Travel And Breakdown Cover

Motability users who take their vehicles abroad will now need to obtain a VE103 certificate before travelling, confirming they have permission to take the leased vehicle outside the UK. The certificate costs £22 for new orders placed on or after 1 July and is valid for 12 months, covering all trips within that period. Users will also need to inform the RAC before travelling.

Motability notes that fewer than one per cent of customers used breakdown cover abroad in 2025, making this the change that affects the smallest number of people. For the handful of users who do travel to Europe with their vehicles, the £22 annual charge is relatively modest, though it represents a new cost for something that was previously included without restriction.

VAT On Advance Payments

Advance payments are the upfront sums that Motability users pay when they choose a vehicle that costs more than their mobility allowance covers. Under the current system, these payments are zero-rated for VAT. From 1 July, the standard 20 per cent VAT rate will apply.

Motability Operations estimates that the average advance payment will increase by approximately £400 over a three-year lease as a result. For users choosing higher-specification vehicles or models with larger advance payments, the increase will be proportionally greater.

Wheelchair Accessible Vehicles and vehicles with significant adaptations will remain exempt from the VAT changes, recognising that these vehicles are chosen out of necessity rather than preference.

Premium Brands Removed From The Scheme

In a separate but related change that has already taken effect, five premium car brands have been removed from the Motability Scheme entirely. Audi, BMW, Mercedes-Benz, Lexus, and Alfa Romeo are no longer available for new applications. All coupe and convertible body styles have also been excluded regardless of brand.

The removal followed the Chancellor’s pointed remarks about Mercedes and prompted strong reactions from the manufacturers involved. Audi said it “strongly believes in customer choice and is disappointed models from the brand will no longer be offered on the Motability scheme.” BMW Group UK said it was sure “this decision will be disappointing for the many BMW customers who participated in the scheme.”

For users who currently lease vehicles from these brands, their existing agreements remain unaffected. But anyone looking to renew into an Audi, BMW, or Mercedes when their current lease ends will need to choose an alternative manufacturer. Brands including Volvo and Polestar remain available on the scheme.

What Stays The Same

Motability has confirmed that several core elements of the scheme will not change. Insurance for up to three named drivers remains included. Servicing and maintenance continue to be covered. Breakdown cover within the UK is still part of the package. And the dedicated support team remains in place.

The organisation stated: “We stay committed to offering an all-inclusive package that gives you confidence and peace of mind.”

Lease payments made from mobility allowances are also unaffected by the VAT changes. The tax applies to advance payments and excess charges, not to the regular allowance deductions that form the basis of most leases.

Who Is Affected And When

The critical date is 1 July 2026. Every change applies only to new orders placed on or after that date. If you already have a Motability lease, your current terms remain in place until that lease ends. The changes will only apply when you place a new order.

Users in Scotland who receive their mobility allowance through Social Security Scotland rather than the Department for Work and Pensions may also be affected differently, though the specific details of any Scottish variations have not yet been fully confirmed.

For the roughly 700,000 people who rely on the Motability Scheme, the July changes represent a fundamental shift in what the package includes and what it costs. The scheme remains one of the most comprehensive motoring packages available in the UK, covering insurance, servicing, maintenance, and breakdown assistance in a single monthly payment. But for users who drive above average distances or who valued the flexibility of the previous allowance, the new terms will require careful consideration of how they use their vehicle going forward.

Sources

Motability Scheme Changes (Motability.co.uk) Changes to VAT and Insurance Premium Tax (Motability.co.uk) Changes to Tyre Replacement (Motability.co.uk) Changes to the Motability Scheme (Motability Foundation) Your Questions Answered (Motability News) Motability Cuts Premium Car Brands (Auto Express)