The Department for Work and Pensions (DWP) has announced that certain recipients of Personal Independence Payment (PIP) will be shielded from a significant new charge linked to the Motability Scheme. This follows the government's decision to apply new taxes to the scheme, which could otherwise add an average of £400 to costs for users.
Budget Changes and the £400 Impact
In the November 2025 Budget, Labour Chancellor Rachel Reeves confirmed that Value Added Tax (VAT) would be applied to Advance Payments from July 2026. Furthermore, Insurance Premium Tax (IPT) will be added to scheme leases. Motability Operations, which runs the scheme, calculated that these changes would increase standard Advance Payments—the upfront cost for a vehicle—by roughly £400 for a standard three-year agreement.
Sir Stephen Timms, the head of the DWP, addressed the concerns, stating the government had engaged closely with the Motability Foundation prior to the announcement to understand the impact. He emphasised that the need for swift policy change meant a formal public consultation was not always practicable.
Who is Exempt from the New Charges?
Crucially, the DWP has outlined specific exemptions to mitigate the financial blow for the most vulnerable users. Existing leases will not be affected by the new tax rules. More importantly, a key exemption has been confirmed for vehicles designed for or adapted to be used by wheelchair or stretcher users.
For these users, VAT reliefs on Advance Payments and the IPT exemption will continue. This recognises the substantially higher costs associated with Wheelchair Accessible Vehicles (WAVs). Sir Stephen Timms described the Motability Scheme as "a lifeline for many disabled people and families," supporting independence by allowing them to lease a car, WAV, scooter, or powered wheelchair using their mobility allowance.
Continued Support and Future of the Scheme
Motability Operations has confirmed it will continue to offer a range of vehicles with no Advance Payment required, ensuring access based on need. The independent Motability Foundation will also persist in providing means-tested grants to help those who would struggle to afford the advance payment or necessary vehicle adaptations.
Sir Stephen Timms concluded that the package of reforms aims to ensure fairness for the taxpayer while continuing to support disabled people. The application of IPT at the standard rate brings the scheme's tax treatment in line with commercial leasing firms, but with critical protections remaining for those with the greatest needs.
