Sweeping Motability changes are set to save the Government £1billion over the next five years as thousands of motorists around the country could see the leases change in the near future.
Reforms to the Motability Scheme were introduced on July 1, but were first announced by Chancellor Rachel Reeves in the Autumn Budget last year in a bid to streamline the service.
Under the new rules, vehicles leased through the Motability Scheme, or equivalent qualifying schemes, will be subject to 20 per cent VAT on top-up payments.
This will be made in addition to the transfer of eligible welfare payments for more expensive vehicles included in the Scheme.
Drivers will also face Insurance Premium Tax, which is levied at the standard rate of 12 per cent, and will apply to most new leases from July 1, 2026.
Mileage rates have changed to limit drivers to 30,000 miles for a three-year lease, or 50,000 miles for a five-year wheelchair-accessible vehicle lease.
People with disabilities on enhanced mobility benefits will continue to receive £77.05 per week and remain eligible for the scheme.
In total, 20 vehicles are available through the scheme with no Advance Payment, including the best-selling Ford Puma, electric Hyundai Inster, and the UK's cheapest car, the Dacia Spring.
Motability Scheme changes were introduced on Wednesday, July 1
| MOTABILITYCommenting on the Motability changes, Work and Pensions Secretary Pat McFadden emphasised that the Government was striving to build a fair welfare system.
He added: "Today's changes are driven by the fairness that underpins this Government - fairness for the taxpayer, fairness for disabled people, and fairness for the country.
"We're saving £1billion of taxpayer money by removing VAT relief from some new Motability leases, whilst ensuring the scheme still supports disabled people's mobility and independence."
It follows Motability removing some luxury vehicles from the scheme, which attracted widespread criticism late last year.
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The Motability changes are expected to save £1billion, according to the DWP
| GETTYMotability said it was "refocusing" the vehicles available on the Scheme by removing cars from brands including Alfa Romeo, Audi, BMW, Lexus and Mercedes-Benz.
It removed all coupe and convertible cars from the Scheme, which tended to be higher-cost vehicles that sit outside the Scheme's focus.
The Department for Work and Pensions said it was returning Motability to its "original purpose" of giving people with disabilities access to practical vehicles.
It added that the scheme should not be used to "subsidise premium extras that go beyond what most people in this country can afford".
Motability removed luxury vehicles from the Scheme last year following backlash
| BMWAndrew Miller, chief executive of Motability Operations, said tax changes announced in the Autumn Budget had "significantly increased" the cost of running the Scheme.
He added: "While we have had to make difficult decisions in response, the changes we are making mean the scheme can keep disabled people connected to freedom and independence now and in the future.
"The scheme continues to offer value for disabled people, including cars with no advance payment in addition to their weekly payments."