- Affected Parties: The reforms will impact Private Hire Vehicle Operators (PHVOs) and businesses providing insurance for qualifying schemes, primarily affecting the Motability Scheme, which leases vehicles to eligible disabled individuals. The changes will come into effect on July 1, 2026, affecting new leases and renewals thereafter.
- VAT and Insurance Premium Tax Changes: The measure removes the VAT zero-rate on top-up payments for vehicle leases, applying the standard VAT rate of 20%. Additionally, the Insurance Premium Tax exemption will only apply to vehicles designed for wheelchair users, while other vehicles leased under the scheme will incur the standard IPT rate of 12%.
- Policy Objective and Economic Impact: The aim is to promote fairness and value for money for taxpayers by aligning the tax treatment of the Motability Scheme with other commercial lease providers. While the changes may lead to increased costs for some users, especially those opting for higher-value vehicles, the overall impact on individuals is expected to be manageable, with a continued availability of vehicles that do not require top-up payments.
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