Motability: VAT
The question
To ask the Chancellor of the Exchequer, what estimate she has made of the cost of VAT relief for Motability in (a) 2025 and (b) each year of the Budget forecast.
Answered by Dan Tomlinson
HMRC publishes estimates of the costs of tax reliefs in its annual publication: Non-structural tax reliefs - GOV.UK. The VAT relief “Vehicles and other supplies to disabled people (vehicles only)” includes the cost of VAT reliefs for supplies of vehicles to disabled people, including but not limited to Motability. The next release of this publication will be on 22 January 2026 and will include an estimate for 2024-25 and a forecast for 2025-26.
At Budget 2025 the government announced tax changes to the Motability scheme which will save over £1 billion over the next five years. The VAT relief for top-up payments made to lease more expensive vehicles will be removed for new leases from 1 July 2026, and Insurance Premium Tax will apply at the standard rate to insurance contracts on the Scheme from 1 July 2026. The tax changes will not apply to vehicles designed, or substantially and permanently adapted, for wheelchair or stretcher users. These tax changes ensure Motability can continue to deliver for its customers, for example through the continued provision of a broad range of vehicle models available without any top-up payments.
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