UK government to apply VAT and insurance tax to some Motability leases

The government will begin charging value-added tax on optional one-off advance payments for larger Motability vehicles and will apply insurance premium tax to all new leases. Officials said the changes form part of wider efforts to reduce welfare spending and encourage more recipients of sickness benefits to return to work.

Changes to the scheme Motability customers who choose higher-priced cars through advance payments will now pay VAT on those amounts. All new leases will also carry insurance premium tax, measures the government projects will generate £1 billion in savings by 2030.

Work and Pensions Secretary Pat McFadden said the adjustments reflect fairness for taxpayers and disabled people while preserving mobility support. The scheme will continue to offer vehicles with no advance payment in addition to weekly lease costs.

Reactions from operators and charities Andrew Miller, chief executive at Motability Operations, stated that tax changes from the Autumn Budget have raised operating costs and that the company made difficult decisions to keep the scheme viable. He added that the program still provides value through cars requiring no advance payment.

A coalition of 70 charities, convened by Transport for All and backed by Labour MP Neil Duncan-Jordan, wrote to disability minister Sir Stephen Timms in March urging consultation with disabled people before implementation. Signatories including Disability Rights UK, Amnesty International UK, and the Trussell Trust said the changes could create barriers to employment, education, and independent living.